States start to cut tax on fuel

The recent hue and cry over fuel prices has led some state governments to reduce the taxes levied by them on various fuels.

These states are Maharashtra (2% waived on kerosene and diesel), Haryana (5% waived on kerosene), West Bengal (`16 waived on kerosene), Uttarakhand (4.5% waived on VAT, 78 paise per litre on petrol) and Kerala (70 paise waived on petrol).
We take a look at the potential impact of a reduction in fuel prices in these states.

Two scenarios have been assessed (see tables): A 5% reduction in state taxes and a 10% cut in duty for five states which have the highest percentage of state taxes levied on fuels used by the consumer.

The basis for calculating the reduced price has been worked out on a state-wise break-up of taxes/duties levied by each state on fuel. We have used March 1, 2008 figures since there is no documented official break-up available of taxes/duties levied by each state on fuel consumption in 2011.

As per the analysis, if the state tax imposed on petrol is reduced by 5-10%, consumers can heave a sigh of relief. In the case of the five states mentioned above, a reduction of 10% can bring down prices by more than `2. On the other hand, a reduction of state taxes imposed on diesel by 5-10% will amount to a reduction of a little over `1 per litre in these states.