Delhi - Finance Minister Arun Jaitley will soon write to all state Chief Ministers urging them to cut sales tax, or value added tax (VAT), on petrol and diesel, Petroleum Minister Dharmendra Pradhan said.
"We have proactively cut excise duty. Now it is the turn of states to reduce VAT," he said.
Noting that states impose VAT ranging from 26% to 38% on fuel, the minister added: "I urge all states to reduce VAT by 5% in line with the cut in central excise duty to provide farmers and consumers with one more slab of relief."
Under all round attack on rising fuel prices, the government on Tuesday decided to slash the excise duty on petrol and diesel by Rs 2 per litre -- effective Wednesday -- to cushion the impact of rise in international crude prices, in a decision that will cost the central exchequer Rs 13,000 crore during the remaining part of the fiscal.
Earlier, due to the increase in the international prices of petrol and diesel during the last few weeks, the retail selling prices of petrol and diesel in Delhi had risen to Rs 70.83 a litre and Rs 59.07 per litre, respectively, as on October 2.
Pradhan said the Centre has sacrificed Rs 26,000 crore in revenue in the cut in excise duty.
"States are the biggest beneficiaries. They get all of the VAT collection plus they also get 42% of the central excise collections. The amount remaining with the Centre is used to finance centrally sponsored schemes in states," he said.
As a result of the excise duty reduction, petrol price has been cut by Rs 2.50 per litre and that of diesel by Rs 2.25, he added.
Under the daily pricing regime for transport fuels, petrol in Delhi on Wednesday was costing Rs 68.38 a litre and diesel Rs 56.89.
Announcing the excise cut, the government said the rise in the prices of petrol and diesel is also reflected in WPI, or wholesale, inflation, which has increased to 3.24% for the month of August 2017, as compared to 1.88% for the month of July 2017, and which prompted the government to act swiftly.
Last month, petrol prices in Mumbai, for instance, crossed levels they had touched before the Narendra Modi government took charge in 2014. In response to criticism on rising fuel prices, Petroleum Minister Dharmendra Pradhan clarified that the excise revenues served for spending on social development schemes.
Despite demands from industry, petroleum products, as well as natural gas, do not come under the Goods and Services Tax (GST) regime. These continue to be taxed as per the old VAT regime.