5 states, union territory agree to move towards uniform fuel prices

The prices of petrol and diesel have hit record highs in recent weeks and the Centre has been asking states to cut down their value added tax (VAT) on fuel to provide relief to the common man.

Five states and the union territory of Chandigarh, ruled by three different parties — the Bharatiya Janata Party (BJP), the Congress and the Aam Aadmi Party (AAP) — on Tuesday agreed to move towards uniform fuel rates. The prices of petrol and diesel have hit record highs in recent weeks and the Centre has been asking states to cut down their value added tax (VAT) on fuel to provide relief to the common man.

A meeting of North Zone Finance Ministers and Officers attended by Haryana, Punjab, Delhi, Himachal Pradesh, Uttar Pradesh and Chandigarh decided to form a committee of officers to prepare a report on bringing uniformity in fuel prices and submit it within two weeks.

The aim was to also ensure that widely different VAT rates do not encourage consumers to hop borders to fill fuel.

Delhi deputy chief minister Manish Sisodia, who holds the finance portfolio, suggested at the meeting that liquor rates too should be uniform in the neighbouring states to prevent undercutting of each other’s revenue. His Punjab counterpart Manpreet Badal proposed that registration fee and permits for transport vehicles too should be harmonised to avoid diversion of revenue. All are areas where arbitrage opportunities exist.

Haryana finance minister Capt Abhimanyu, who organised the meeting, later said the committee would look into all three aspects: uniform fuel rates, liquor rates and transport taxes. Based on its report, the states will decide on the next course of action. Excise and taxation officers represented Himachal Pradesh (chief minister Jairam Thakur holds the finance portfolio), Uttar Pradesh and Chandigarh.

Punjab’s tax on petrol (35.12%) is highest in north India, but the cash-strapped government has been refusing to cut it down saying it is hard pressed for funds and VAT on fuel is a major source of its cash flow to foot health, education and other expenses. Badal said the VAT charged by Punjab on diesel is lower than some neighbouring states.

“Each state will have to tweak its tax slabs to finally have a common band with minimal difference in petrol and diesel rates. If the prices vary by less than a rupee, for instance, it would no more be lucrative for anyone to purchase fuel from a bordering state. The same applies to liquor and transport taxes. If all neighbouring states charge the same registration and permit fee for vehicles, the owners will not get the registration of vehicles done from a neighbouring state that charges less,” he added.

Being a union territory, the taxes for petrol, diesel, excise on liquor as well as transport permits and registrations are the lowest in Chandigarh.

The first such meeting of northern states in May 2015 was held at Delhi and the Arvind Kejriwal government had to hike its VAT rate on petrol from 20% to 25% and diesel from 12.5% to 16.6% to bring them on par with Punjab and Haryana.

Six BJP-ruled states slashed their taxes in October last year after a surge in fuel prices. Some Opposition-ruled states such as Kerala and Andhra Pradesh, too, have done so recently.