It may be difficult for other states to follow Goa’s example to cut VAT on petrol by Rs 11, according to analysts.
In India the VAT or sales tax on petrol and diesel varies from state to state. It is highest in Andhra Pradesh were the tax is around 33 per cent on petrol and 28 per cent on diesel.
KPMG, executive director and head of energy and natural resources, Arvind Mahajan said it is difficult for the larger states to cut VAT on petrol by huge margin as it is a very important component of their revenues. “Smaller states, which depend upon tourism, can cut the VAT by huge margin but it is difficult for the larger states to follow it,” said Mr Mahajan. Ms Kalpana Jain, senior director, Deloitte Touche Tohmatsu India, said that taxes on petrol has direct relation with the revenue of the state government. “Any cut in taxes on petrol by states will impact their revenues. Wherever taxes on petrol contribute a large revenue to the states it will be difficult for them to follow Goa example. They can go for token cuts,” said Ms Jain.
PricewaterhouseCoopers associate director Deepak Mahurkar said that the finances of most of the states right now are under stress and it will be difficult for them to go Goa way.
Mr D.K. Joshi, chief economist at Crisil, the local arm of Standard and Poor’s said that the main issue is the rationalisation of the taxation on the petroleum products. “There is too much tax on the petroleum products right now,” said Mr Joshi. For a long time the Central government has been asking the states to convert their taxes on petrol and diesel from ad valorem basis to specific rates. This is because if the tax is on the ad valorem basis, whenever there is an increase in the petrol prices, the amount of tax on it also goes up by the same percentage, rendering the product even more expensive.