The prices of petrol and diesel went up by Rs 3.25 and Rs 2.50 per litre on Sunday as the government of Tamil Nadu revised the Value Added Tax (VAT) on fuel.
According to reports, this change in VAT structure has been made by the state government in anticipation of a decrease in selling price of fuel by the Centre in the coming days. Had the rate of VAT been left unchanged, the reduction in the selling price of fuel in the coming days would have led to a sharp decrease in the revenue to the state government. This increase in VAT is expected to bring in an additional revenue of around Rs 250 crore to the state government.
The decision to hike the rate of VAT comes shortly after the government of Tamil Nadu announced freezing of Dearness Allowance (DA) for all state government employees. The decision was to freeze the DA, which is revised upwards every six months, till July 2021 at the current rate of 17%. This is expected to yield the state government an additional revenue of at least Rs 4500 crore.
Before the introduction of Goods and Services Tax (GST), the state had control over bringing in more revenue by tweaking tax rates that fall under the jurisdiction of the state government. However, with the advent of GST, the only means of major tax revenue for the state government which is under its total control are stamp duty, tax on alcohol and VAT on fuel.
These measures come as the state continues to fight against the COVID-19 pandemic. Tamil Nadu reported 266 new cases of COVID-19 on Sunday, taking the total number of positive cases in the state to 3023. The state has also amped up testing and has tested over 10,000 samples per day since Saturday.
The Tamil Nadu Chief Minister has also been constantly requesting the Centre to clear the GST dues pending for the state for the months of December, January and for more funds to battle the pandemic.