MP may hike VAT on petrol, diesel after civic polls

Hit by revenue loss because of falling prices of petroleum products, Madhya Pradesh government is planning to hike VAT on petrol and diesel. However, even as the proposal prepared by the state commercial tax department is awaiting Cabinet nod, sources said that the government will not make the move until the civic body elections are over.

Taxes on petroleum products in Madhya Pradesh are already among the highest in India. The state levies 28.5% tax on petrol and 23% on diesel. The taxes on petroleum items are levied as per 'ad valorem' method which means that any increase or decrease in prices of fuel affects tax collection.

"The government's revenue has come down due to steep fall in petrol and diesel prices. We are planning to increase VAT by up to 2%, which will increase the revenues by Rs 145-150 crore per annum," a commercial tax department official told HT.

Petrol prices in Indore, which were ruling at more than Rs 78 per litre in August, have now come down to Rs 68.35 per litre, while diesel prices have come down to Rs 58.91, a reduction of more than Rs 6 per litre ever since the prices were decontrolled on October 18.

Revenues from diesel and petrol sales constitute a major chunk of total revenues of commercial tax department. It is because of this reason that the state government has been asking for exemption of petroleum products from the list of products under goods and services tax (GST) — a uniform tax structure proposed by the Union government.

However, any move to hike VAT on diesel will upset the petrol pump dealers. The rate of VAT in neighbouring states, including UP, Gujarat and Maharashtra, is already lower than that in Madhya Pradesh, and any further hike would result in the petrol pumps in MP losing business to these states.

"Any move to raise VAT on diesel will be ill-advised considering that rate is already high in MP," MP Federation of Petroleum Dealers secretary Sudhir Arien said.

StateVAT on diesel

Madhya Pradesh 23%
Maharashtra 21%
Gujarat 21%
UP 17.3%
Punjab 11.25%