Chandigarh: In a bid to address Punjab's escalating financial crisis, the state government on Thursday announced several key decisions, including a value-added tax (VAT) hike on fuel, withdrawal of a crucial power subsidy, and an increase in bus fares.
These measures come as the Aam Aadmi Party (AAP) government, led by Chief Minister Bhagwant Mann, grapples with severe budgetary constraints that have left it unable to pay government employees’ salaries until September 4.
Punjab Finance Minister Harpal Cheema revealed the decisions following a Cabinet meeting held here. The Punjab government approved an increase in VAT on petrol and diesel, raising prices by 61 paise and 92 paise per litre, respectively. The state government aims to generate an additional Rs 500 crore annually through this hike.
The Cabinet also withdrew the Rs three per unit power subsidy, which had been introduced by the previous Congress government under Charanjit Singh Channi, for consumers with loads up to 7 kilowatts. The move is expected to save the government approximately Rs 1,500 crore per year. Cheema, however, emphasised that all consumers would still receive 300 free units of electricity per month, benefiting over 90 per cent of the population.
In another major decision, bus fares were increased by 23 paise per kilometre, a measure projected to generate an additional Rs 150 crore annually.
The Punjab government’s financial troubles stem largely from the growing burden of a ballooning power subsidy bill, which is expected to surpass Rs 24,000 crore this year. The VAT hike and the withdrawal of the power subsidy are part of broader efforts by the state government to stabilise the state's finances, as Punjab faces one of its worst fiscal crises in recent years.
Cheema pointed out that the power subsidy introduced by the previous administration has been a major drain on the state's resources. While the subsidy is being reduced, the government will continue to offer 300 free units of electricity to consumers every month, ensuring that the majority of residents benefit from affordable power.
VAT, a consumption tax applied at various stages of production and distribution, plays a significant role in raising government revenue. By collecting VAT incrementally, businesses help the government generate funds while distributing the tax burden across the supply chain.
Punjab is not the only state to increase VAT on fuel recently. In June, the Goa government implemented a similar measure, raising VAT on petrol and diesel. Goa's VAT hike resulted in a Re 1 increase in petrol prices per litre and a 36 paise hike in diesel prices, raising the prices to Rs 95.40 and Rs 87.90 per litre, respectively.
