Chief Minister Arvind Kejriwal Thursday announced a reduction in the Value Added Tax (VAT) on diesel from the existing 30 per cent to 16.75 per cent, saying the move will help propel Delhi's economy. The diesel price will be reduced by Rs 8.36 in Delhi due to the VAT cut, Kejriwal said in a virtual press briefing.
He said there was a serious challenge of reviving the economy of Delhi but it will be achieved together with the cooperation of people. The diesel price will now come down from Rs 82 a litre to Rs 73.64 a litre, he said and added that traders and industrialists in the city had demanded it.
The decision was taken in a meeting of the Delhi Cabinet chaired by the chief minister.
The rising diesel prices created a furor as for the first time, diesel costed more than petrol in the national capital.
Last month, the prices were hiked for 18 days straight, as diesel prices were increased by Rs 10.48 a litre, while the petrol price has increased by Rs 8.50 per litre.
Fuel will also rise in other states but diesel will remain cheaper owing to lower taxes imposed by the state governments. But the gap between the prices will lessen, the report states.
Due to a difference in international benchmark prices, petrol price is usually higher by Rs 5 to 8 than diesel. In early May, the two fuels had a gap of Rs 7.3/litre, but the proportion changed after hikes in VAT on them by the Delhi government.
In other metros, diesel maintains the tag of cheaper of the auto fuels with price differential between diesel and petrol prices remaining at about Rs 8 litre in Mumbai, Rs 6 a litre in Chennai and Kolkata.
Due to differential taxation structure at both Centre and the states, diesel prices in the country has always remained much cheaper than petrol. Globally though, diesel is the expensive of the auto fuels as the product has higher cost of production.
What has now made diesel prices higher in the capital is the Delhi government's decision early May to increase Value Added Tax on diesel from 16.75 per cent to 30 per cent and on petrol from 27 per cent to 30 per cent. This increased the retail price of Diesel and petrol in Delhi by Rs 7.10 and Rs 1.67 a litre, respectively.
With central taxes on the two products already reaching identical levels, the Delhi governments move hastened price parity between petrol and diesel. Currently, the central excise on petrol is Rs 32.98 a litre while that on diesel it is Rs 31.83 a litre. VAT on petrol in Delhi is Rs 17.71 a litre that on diesel is Rs 17.60.
"Diesel price movement is sharper in international market and if oil companies follow the global price trend, diesel prices will remain higher. It is after many years that this happened and is expected to sustain for some time unless government changes the tax structure on petroleum products again," said an oil sector expert from one of the big four audit and advisory firm asking not to be named.
With inputs from PTI/ IANS