Oil price politics: Deciphering tax on petrol in states that did not slash VAT

Taxation of petroleum products is a complex exercise, particularly at state level as they levy cess and surcharges and also use a combination of fixed rates and ad valorem rates where exact amount of tax varies as per the variation in the base prices for respective states.

New Delhi: Prime Minister Narendra Modi’s decision to name seven opposition ruled states publicly for not slashing the VAT or sales tax on petroleum products has ignited a war of words between the Centre and these states.

These seven states are Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand. Though Prime Minister Modi did not name Congress ruled Rajasthan but while giving the price comparison, he referred to Rajasthan’s capital Jaipur where price of petrol per litre is Rs 118 per litre. Taxation of petroleum products is a complex exercise, particularly at state level as they levy cess and surcharges and also use a combination of fixed rates and ad valorem rates where exact amount of tax varies as per the variation in the base prices for respective states.

For example, in TRS ruled Telangana, the VAT is 35.2% on petrol which is highest in the country in straight terms as Telangana does not have a mix of fixed and ad valorem tax components along with cess and surcharges. The petrol price in Hyderabad is Rs 119.49/ litre and in some other cities such as Adilabad, it is even higher at Rs 121.73/Litre, which is one of the highest in the country.

Maharashtra, which is ruled by Shiv Sena-NCP-Congress combine, has dual rate structure. For five cities - Mumbai, Thane, Navi Mumbai, Amravati and Aurangabad – VAT on petrol is 26% VAT plus Rs 10.12/litre additional tax. For the rest of the state the amount of VAT is one percent less at 25% while additional tax is the same at Rs 10.12/litre.

The state capital Mumbai has one of the highest rates for Petrol in the country and it was also one of the cities named by Prime Minister Modi. The PM had contrasted the price of petrol in Mumbai at Rs 120 per litre and nearby Daman & Diu at just Rs 102 per litre. In West Bengal, which is ruled by Trinamool Congress, state tax structure is fairly complex as the state levies 25% VAT on Petrol or Rs.13.12/litre whichever is higher as sales tax.

In addition to this, the state levies Rs 1000/kilo litre cess – Rs 1000/kilo litre sales tax rebate with 20% Additional tax on VAT as irrecoverable tax. PM Modi has named West Bengal’s capital for having a petrol price of Rs 115/litre as it contrasted the petrol price in Kolkata with the petrol price in Lucknow where it is Rs 105/litre as Lucknow is capital of BJP ruled Uttar Pradesh.

In Andhra Pradesh, VAT rate on petrol is one of the highest in the country as the state levies 31% VAT plus Rs 4/litre fixed VAT and an additional Rs 1/litre as Road Development Cess and also imposes VAT on the cess. In Andhra Pradesh’ Visakhapatnam, petrol price is nearly Rs 121/litre, one of the highest in the country.

In Tamil Nadu, which is ruled by DMK, state sales tax or VAT has two components, fixed ad valorem and fix at 13% and Rs11.52 per litre respectively. PM Modi named Chennai for having costlier petrol at Rs 111 per litre, certainly not one among the highest but the petrol price does not fall in the category of those states that have petrol price at Rs 102--to-Rs 105 per litre.

In the southern state of Kerala, there are three components of state taxes on petrol, Rs 30.08% sales tax plus Rs1/litre additional sales tax and additional 1% cess. Petrol price in Thiruvananthapuram is Rs 117.19/litre which is the league of those cities and states where it is on higher side. In the northern state of Jharkhand, which is ruled by Jharkhand Mukti Morcha and Congress alliance, the state VAT is 22% on the sale price or Rs 17.00 per litre, whichever is higher plus an additional cess of Rs 1.00 per litre.

Though the Prime Minister Modi did not name the Congress ruled Rajasthan but it did point out the petroleum price in its capital Jaipur which has one of the highest petrol prices in the country at Rs 118/litre. The state levies 31.04% VAT plus an additional Rs 1500/kilo litre road development cess on petrol. A day after Prime Minister Modi’s appeal to these seven states to bring down VAT or sales tax on the sale of petrol and diesel, information and broadcasting minister Anurag Thakur tweeted those BJP and other parties ruled states that reduced their taxes following the reduction in Union excise duty in November have lost Rs 15,969 crore in five months (November to March 2022).

Anurag Thakur said BJP states alone lost Rs 11,398 crore during this period whereas the seven opposition ruled states (which were named by PM Modi) that did not cut their taxes earned an additional Rs 11,945 crore during this period.