Amid rising prices of crude oil, the government increased the prices of petrol and diesel by Rs 3 each per litre. The rates have increased differently in the metropolitan cities of the country, but the question often arises in the minds of people that why are the prices of petrol and diesel different in different states? The biggest reason for this is VAT i.e. Value Added Tax. What is this tax? How to earn money from this? Let us tell you about it.
The central government levies excise duty, while the state governments levy VAT and this tax creates a big difference in fuel prices across states. VAT is a tax which is decided by the state governments as per their discretion. This is the reason why petrol and diesel appear expensive in some states, while VAT is less in some union territories. Many states levy VAT on a percentage basis, while some states also add fixed taxes and cess per litre.
What is VAT?
VAT i.e. Value Added Tax is a tax which is imposed at every stage of increase in the price of a good or service. In simple language, when the value of a product gets added, then the government charges tax on that increased price. Ultimately the entire burden falls on the common consumer, because he is the one who pays the final price.
This is the reason why the prices of petrol and diesel appear different in different states. In states where VAT is high, fuel becomes expensive. At the same time, people get some relief in states with low VAT. VAT is also a major source of income for state governments. States get revenue worth thousands of crores of rupees from the sale of petrol and diesel, which is used in roads, electricity, water and other government schemes.
Petrol and diesel are out of GST
Petrol and diesel are currently out of the scope of GST. Therefore, central excise duty, state VAT, road cess and dealer commission are added separately. If petrol and diesel are brought under GST, there may be some relief in prices, but this will affect the tax income of the states. This is why state governments remain cautious about reducing VAT.
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