New Delhi: The Reserve Bank of India (RBI) has decided to support the Union government’s pitch for states to reduce sales tax (VAT) on petrol and diesel. RBI Governor Shaktikanta Das said Wednesday a cut in VAT on fuel will help soften inflationary pressures as well as expectations.
The central government had May 21 cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6. It was done to give relief to consumers battered by high fuel prices. The high fuel prices have also pushed inflation to an all-time high. At that time, it asked states to lower VAT to further provide relief. Almost no state reduced VAT.
Das announced the bi-monthly monetary policy Wednesday. He said a quick survey of urban households undertaken after the excise duty cuts on petrol and diesel May 21 showed a significant moderation in their inflation expectations.
“In such a scenario, further reduction of State VATs on petrol and diesel across India can certainly contribute to softening of the inflationary pressures as well as expectations,” Das said.
Finance Minister Nirmala Sitharaman, at the time of announcing a reduction in excise duty, had urged states to reduce VAT. Her other cabinet colleagues including Oil Minister Hardeep Singh Puri made similar pleas.
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In April, Prime Minister Narendra Modi too had asked the states to lower their taxes to enable users to get the full benefit of the previous excise duty cuts of November 2021. Non-NDA party ruled states had not reduced VAT.
Post-November 2021 reduction in excise duty on petrol by Rs 5 per litre and that on diesel by Rs 10 a litre, 25 states and UTs had cut VAT to give further reprieve to consumers battered by record-high retail prices. However, states ruled by non-NDA parties like Maharashtra, Andhra Pradesh, West Bengal, Kerala and Tamil Nadu had not reduced VAT.
“Many states like Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Jharkhand did not agree to our request for some reason or the other. The burden on the people of these states continued,” Modi had said April 27.
India is 85 per cent dependent on imports to meet its oil needs. The surge in international crude oil prices following Russia’s invasion of Ukraine has contributed significantly to pushing the inflation rate to 7.8 per cent in April.