The states will forego around Rs 44,000 crore of tax revenue after they reduced VAT on petrol and diesel in the reminder of the fiscal but higher central tax devolution of Rs 60,000 crore will offset the losses, according to a report.
After months of calls for lowering the taxes on the fuels, the Centre on November 4 cut excise duty on diesel by Rs 10 a litre and by Rs 5 on petrol. Following this, as many as 25 states and Union territories have lowered value-added tax (VAT) on these fuels.
The FY22 revenue loss of the states from tax cut is around Rs 44,000 crore, of which Rs 35,000 crore is by way of lower VAT and the rest indirectly, Aditi Nayar, chief economist at rating agency ICRA, told reporters on Thursday.
But, the states are not actually losing money as they are getting Rs 60,000 crore of additional revenue from the Centre as part of the higher-than-budgeted tax devolution, she said.
While the Central excise reduction leads to no direct revenue loss to the states, the reduction of VAT, which is levied on an ad valorem basis, the excise cut will lower their VAT inflows by Rs 9,000 crore, Nayar said.