States raise VAT on auto fuels to offset adverse impact on tax revenues

Taking a cue from the Centre, which recently raised taxes on petrol and diesel to boost revenues, six state governments have, over the past few weeks, raised the value added tax (VAT) on these auto fuels. Others could soon follow suit. While the Centre hiked specific duties not linked to the price, the states are raising levies to offset an adverse impact to their tax revenues from the fall in prices of auto fuel prices since VAT is levied ad valorem.

Odisha, Madhya Pradesh, Goa, Rajasthan, Punjab and Haryana are among those that have recently upped the VAT on auto. Orissa raised VAT on both petrol and diesel by 3 percentage points to 23% on December 25 while Madhya Pradesh raised the tax rate by 4 percentage points on petrol to 31% and by an equal measure on diesel to 27%. Haryana raised VAT on diesel from 8.8% to 11.5% on November 25.

Goa, where petrol is the cheapest in the country because of the low tax rate, raised VAT on the fuel from 3.5% to 10% from January. While Punjab raised VAT on diesel by 1.5 percentage point to 11.25% with effect from November 15, Rajasthan raised tax on both petrol and diesel by 4 percentage point to 30% and 22%, respectively, from December 18.

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