Three years ago on April 1, 2012 the residents of Goa welcomed the Rs 11 drop in petrol prices with the reduction of VAT on the fuel reduced to 0.1 per cent and rejoiced at this. It was an election campaign promise of the Bharatiya Janata Party that had got the party the votes to form a government. The price of petrol, before the VAT was reduced so drastically, was hovering at around Rs 66 a litre in the State. With the price falling to less than Rs 55 a litre, Goa became the envy of the other States where petrol prices were far higher than in this tiny State.
Goa enjoyed this full rebate in fuel until the VAT on petrol was increased to 3.5 per cent in August last year, and then in December last, soon after taking over the reins of office, Chief Minister Laxmikant Parsekar had again increased VAT on petrol, this time taking it up to 10 percent. Now on April 1, 2015 the government has further increased VAT on petrol and the price of the fuel has gone up by Rs 2 per litre. The latest increase in VAT came following a budgetary proposal made last month. The revenue that the increase in VAT on petrol will bring will be used for infrastructure development schemes, the chief minister said in his budget.
Goa, however, continues to be the State where the rate of petrol remains the lowest and the chief minister was clear when presenting his maiden Budget that he will review this decision to increase VAT if there is any drastic increase in the cost of petrol. Though the chief minister feared that he might attract criticism for the increase in VAT and said so post the budget, there has been none, except the token voices of protest raised from the Opposition parties. That is expected.
The BJP that had made this promise to bring down the prices of petrol in its 2012 Assembly Election manifesto acted upon it immediately after coming to power, making it one of the first promises to be kept. Within weeks of assuming office, then chief minister Manohar Parrikar had brought down the VAT on petrol. With the passage of two years and a cash crunch, suffered primarily due to the stoppage of mining operations, the government was compelled to increase the VAT on petrol so as to buffer the State’s earnings. Though the State’s share of central taxes is set to increase by Rs 1054 crore following the recommendations of the 14th Finance Commission, and would give the government some leeway, the government still had to increase its own revenue.
While this latest decision may appear to be yet another ‘U’ turn by the government – which is being accused of many such turns – there are reasons for this increase in VAT on petrol that one must admit make this hike acceptable. The chief minister himself said that he took this decision as the prices of crude have fallen drastically and that after the de-regulation of fuel prices by the Union government. What he perhaps left unsaid, directly in relation to the increase in VAT on petrol, was the debt that the State government is burdened with.
It may be acceptable for the Opposition to criticize the government on this decision, but the State is facing a debt trap and an exercise of mopping up revenue was required to be undertaken by the government. The government hopes to mop up around Rs 100 crore through this increase in VAT on petrol. This Rs 100 crore works out to about two thirds of all the commercial taxes that the government aims to earn in the financial year 2015-16, and it is coming from only petrol. If not from petrol the State would have had to earn it from other ways, which would still involve taxing the people.
The price of petrol in Goa still remains below Rs 60 a litre and should the Centre hike the rate anytime soon, the chief minister has promised that he will review the VAT component. Given all these factors, there should be little to crib about in relation to the hike. Yes, it may pinch, but there are factors that make it acceptable.
