Can states really afford slashing VAT on petrol, diesel, asks Chidambaram

Senior Congress leader P Chidambaram on Sunday wondered whether states can afford to give up revenue from Value-added Tax (VAT) on petrol and diesel unless the Centre devolves more funds or gives them more grants, likening their situation to being between the devil and the deep sea.

The tweet by Chidambaram, a former finance minister comes a day after the government slashed excise duty on petrol by ₹8 per litre and on diesel by ₹6 per litre.

“I wonder if they can afford to give up that revenue unless the Centre devolved more funds or gave them more grants. The situation is like being between “the devil and the deep sea”,” he tweeted.

Chidambaram, who on Saturday, had accused the Centre of robbing states by asking them to slash VAT in addition to the cut in ‘excise duty’ said he stands corrected after perusing the notification on reduction of duty of petrol and diesel.

“The notification on reduction of duty on Petrol and Diesel is now available. FM used the words Excise Duty, but the reduction is in Additional Excise Duty which is not shared with the states. Hence, contrary to what I said yesterday, the entire burden of the reduction falls on the Centre. To that extent, I stand corrected,” Chidambaram said.

The former finance minister on Saturday had said that of every one rupee that the Centre reduces from the central excise duty, 41 paise is the state’s share and hence it was unfair of the finance minister to exhort states to cut down on VAT too.

While correcting himself on this front, Chidambaram, however raised concerns over the capability of states to cut taxes on petrol and diese.

“The states are getting very little by way of share of duties on petrol and diesel,” he said, noting that their revenue is from VAT on petrol and diesel.

Petrol price on Sunday was slashed by Rs 8.69 a litre and that of diesel by ₹7.05 per litre following the government’s decision to cut excise duty on auto fuels, giving relief to consumers battered by high fuel prices that had pushed inflation to a record high.