Despite Centre’s appeal, Maharashtra unlikely to cut VAT on petrol, diesel amid strained finances

Maharashtra Unlikely to Cut Fuel VAT Despite Centre’s Appeal

Despite Centre s appeal Maharashtra unlikely - Despite the Centre’s call for reduced VAT on petrol and diesel, Maharashtra remains steadfast in its decision to retain current tax rates. State officials argue that the financial strain from rising fuel prices and inflationary pressures necessitates maintaining higher taxation to stabilize the state’s budget. The central government’s recent appeal, following a nationwide excise duty cut of ₹10 per litre, highlights the growing pressure on states to ease consumer burdens. However, Maharashtra’s finance department insists that slashing VAT would jeopardize its already precarious fiscal situation.

State Revenue and Fiscal Challenges

As one of India’s most economically dynamic states, Maharashtra relies heavily on petroleum taxes to fund critical services and infrastructure projects. The state’s projected revenue shortfall for FY 2026-27 is estimated at over ₹40,500 crore, with total debt exceeding ₹11 lakh crore. These figures underscore the urgency for the government to preserve revenue streams, as any reduction in VAT could compound the financial difficulties exacerbated by stagnant tax collections and rising expenditure. “Despite Centre’s appeal, Maharashtra cannot afford to cut VAT on fuel at this time,” a finance ministry spokesperson said, emphasizing the need for fiscal discipline.

With the Goods and Services Tax (GST) framework in place, VAT on petroleum products and liquor remains a key component of the state’s revenue strategy. This is particularly crucial for Maharashtra, where fuel taxes contribute over ₹65,000 crore annually to the state exchequer. The state’s decision to maintain these rates reflects a broader strategy to manage its financial commitments, including the proposed farm loan waiver and ongoing social welfare programs. While the Centre’s appeal aims to provide relief to consumers, Maharashtra officials believe the benefits would be offset by the loss of critical revenue.

Comparative Tax Rates and Regional Context

Maharashtra’s current VAT on petrol, at 25%, is second only to Telangana’s 35.2% rate among Indian states. Alongside a ₹5.12 per litre cess, the total tax burden for petrol reaches over ₹25 per litre, significantly higher than neighbouring states like Karnataka (13.7%), Gujarat (15%), and Goa (29.84%). This disparity has sparked debates about equitable tax policies and consumer affordability. Despite Centre’s appeal, Maharashtra’s government maintains that its higher tax rates are necessary to sustain public spending and address the state’s growing debt.

State officials point to recent actions, such as the 11 percentage point VAT cut on Aviation Turbine Fuel (ATF), as evidence of their cautious approach. The ATF reduction, which cost the state approximately ₹600 crore annually, was seen as a smaller adjustment with minimal impact on overall revenue. In contrast, a similar move on petrol and diesel would require a more substantial sacrifice, given the higher volume of consumption and the broader economic implications. “Despite the Centre’s appeal, the state is prioritizing long-term fiscal stability over short-term consumer relief,” an official noted.

Geopolitical Factors and Consumer Advocacy

Geopolitical tensions in the Middle East have driven up global crude oil prices, prompting the Centre to push for tax cuts to alleviate inflation. However, Maharashtra’s stance is shaped by its unique financial landscape and the need to balance immediate relief with long-term sustainability. Chetan Modi, president of the Petrol Dealers Association, echoed this sentiment, stating that “Despite Centre’s appeal, Maharashtra’s government must retain VAT on fuel to ensure continued funding for public services.” He also emphasized that the state’s percentage-based taxation model allows for flexibility in adjusting rates based on market conditions.

While the Centre advocates for reduced VAT to ease the burden on households, Maharashtra’s officials highlight the ripple effect of such changes. A cut in fuel taxes could impact the state’s ability to fund infrastructure projects, healthcare, and education. Additionally, the proposed ₹35,000 crore farm loan waiver and annual spending on the Ladki Bahin scheme—nearly ₹29,800 crore—add pressure to maintain existing revenue sources. “Despite Centre’s appeal, the state is in a position where it cannot compromise on its financial commitments without risking long-term growth,” a senior bureaucrat added.

“Maharashtra’s decision to keep fuel VAT unchanged is a strategic move to ensure the state can meet its financial obligations, despite the Centre’s appeal,” stated a senior official, underscoring the government’s commitment to fiscal prudence. This stance reflects a broader trend of states prioritizing revenue security over immediate consumer relief, especially in the face of mounting economic challenges.