By Ruma Dubey

It seems unbelievable that Goa could show us the way to bring down costs of petrol, despite the rising price of crude. Tips on tourism might not have come as a surprise but this came as a real revelation.

When Goa announced, in its State Budget for FY13, a 11% reduction in its Value Added Tax (VAT) on petrol, the price of petrol was to come down by Rs.11/litre. It first seemed like a typo error! After all, have we ever heard of any Budget announcing a rate cut in petrol?

But no, it was not a typo error. Indeed it was true. By bringing down the VAT, the price of petrol has indeed come down. The fuel costs Rs.65.61/litre in Panaji and post this, from 2nd April, it will come down to around Rs.55/litre, making it the cheapest in India! That is not all. To lure aviation companies to refuel at the Goa airport, VAT on aviation fuel is also being reduced from 22% to 12%.

How did Goa do this? The VAT on petrol was at 20% and the Finance Minister of the sate almost did away with it completely, keeping it at just 0.1% to maintain sales record. Doesn’t this mean that the Govt will take a hit on its revenue collection from VAT on petrol? Most certainly yes!  But to compensate for this loss, he hiked taxes all around – on liquor, aerated drinks like Coke and Pepsi, on fast food, textile fabrics, cigarettes, entertainment tax on casinos, service tax of 10% for beauty parlour and spa’s, hiked the rate of entry tax on coal and coke to 2% and many more. All these collectively are expected to bring in additional Rs.470 crore and this is expected to balance out the loss on account of VAT. And also helping Goa was the fact that it is amongst one of the richest states in the country and its per capita income in second best in India, after Chandigarh.

What an excellent example to set! Indeed, sometimes the best advice comes from the most unexpected sources. Rajasthan has taken the cue and when it presented its Budget a day later, it reduced VAT on petrol from 28% to 26%; very meager, namesake but nevertheless, it got down the price of petrol by Rs 1.06/litre, from Rs.69.83 to Rs. 68.77.

With deregulation, how this works is that though central taxes remain fixed and is not linked to the base price, unlike VAT, which is levied as per the discretion of the state and is charged on the base price. Thus each time the price of petrol is hiked, VAT goes up and the state earns a few more crores. With the Central govt taxes and duties plus state VATs, the price of petrol goes up by a whopping 42 to 45% on the base price. Thus we consumers are paying almost Rs.35/litre as various taxes and duties on petrol.

For those living in Maharashtra, this is like putting salt on a raw scab. In its Budget, cost of LPG was hiked and there were no real benefits. In Maharashtra VAT is at 26% and there is also a charge of Re.1/litre cess on petrol and diesel. Pune based Sajag Nagrik Manch has sent a memorandum to the CM of Maharashtra, urging him to follow Goa. It has justified stating that, “Since 2008 when Maharashtra government first lowered VAT on petrol and diesel by 2% to 26 %; the petrol and diesel prices have gone up by 40 % and consumption has gone up by 20 %. So the government is benefited by automatic increase in revenue by 60 % in last three years. After the Rs 3.14/litre rise in petrol price from September 9 the state governments revenue will further go up by 1.5 %. So even if the government decided to cut VAT on petrol by 1.5 %, there will be no impact on the state budget but the consumers can get some relief.” Well said!  For now, those at the border of Maharashtra can surely take advantage of this price fall in Goa!

Collectively, state governments get about Rs 1.6 lakh crore as tax from petroleum products. A small example: VAT in Tamil Nadu is at 27%. Its average monthly petrol sales is placed roughly at 17 crore litres and this means, the State earns Rs.264 crore/month and Rs.3000 crore/year. If the Tamil Nadu government cuts VAT by 5%, petrol price at pumps will come by Rs.4.

Amongst other states, Andhra Pradesh at 33% is the highest, followed by Punjab at 32.96%, Karnataka at 31.25%. Gujarat charges a VAT of 23% on petrol, West Bengal charges 27% VAT, Odisha charges 19% and Uttar Pradesh charges 26.6% VAT.

Goa has indeed shown all states in India the way ahead. Consumers are sure to protest any rate hike now and pressure is sure to mount on states to reduce VAT. The central Govt is planning on a fuel price hike by 1st April, as soon as the Budget session gets over. Will people sit down quietly and take on this burden especially now when they know that the state is earning at their cost?