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RBI lends voice to VAT cut on fuels

Guv says reducing sales tax by States on petrol, diesel will ease inflationary pressure

RBI Governor Shaktikanta Das
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Reserve Bank of India Governor Shaktikanta Das

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New Delhi: Lending support to the Union government's pitch for states to reduce sales tax (VAT) on petrol and diesel, Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said a cut in VAT on fuel will help soften inflationary pressures as well as expectations.

The central government had on May 21 cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 to give relief to consumers battered by high fuel prices that 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. Announcing the bi-monthly monetary policy, Das said a quick survey of urban households undertaken after the excise duty cuts on petrol and diesel on May 21 showed a significant moderation in their inflation expectations. "In such a scenario, further reduction of State VATs on petrol and diesel across the country 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. But hardly any state reduced VAT after the May 21 excise duty cut announcement. 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, and the burden on the people of these states continued," Modi had said on April 27.

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