Delhi Government forced to reduce the VAT on diesel, after finding that people voted with their feet

Sometimes, Governments get feedback from the citizens in ways that they cannot anticipate. One example was seen in the recent issue about the VAT rates on diesel, implemented by the Delhi Government. The Commonwealth Games to be hosted by Delhi in October is sucking in more money that anticipated, and with delays, especially for the various infrastructural work that has been getting delayed, the cost over-runs can be fairly large. All this needs more money, and to some extent, the central Government wants the Delhi Government to generate some of the enhanced revenues needed. And it is quite clear how the esteemed chief minister of Delhi, Mrs. Shiela Dixit, feels. She has expressed an opinion earlier that the citizens of Delhi can afford to pay more for services such as electricity, and can also be used to generate more revenue by increasing the rate of tax on even essential items.
And so, the Delhi Government increased the VAT rate on diesel to be 20%, leading to an immediate increase in the rate of diesel. Such a move shocked people in Delhi, but the Government would have thought that they could even get away with something like this. After all, if the citizens of Delhi do not even protest at the huge amounts of money spent on maintenance of roads that do not even last one rainy season, or that the MCD has a huge number of fake employees on its rolls, so as to steal more money in terms of salaries for these fake employees; then the Government would seem to be justified in increasing such a rate.

Soon after the hike in VAT, the diesel stations in Haryana and Uttar Pradesh just next to Delhi started putting huge notices, stating that they now sell diesel that is actually cheaper than in Delhi, and for people who do travel between Noida and Gurgaon, there was a huge temptation to not fill diesel in Delhi, but instead in Gurgaon / Faridabad / Noida. This was the very point brought up by diesel pump owners a few weeks back where they stated that the Government would eventually lose money since they are selling significantly lower quantities of diesel than before the hike in VAT.
And this is exactly what has happened. Enough people are not buying diesel in Delhi, leading to a situation where the enhanced VAT rate is actually still leading to lower revenues for the Government. One wonders how come nobody in the Government never thought of such an eventuality (if they had, they would have come to the same conclusion that it did not make sense to increase VAT rates unless the diesel rates in neighboring cities are also increased somewhat to match the new rates in Delhi). Now the situation is that the Government has gone in for some face saving, by reducing the VAT rate again, hoping that people would be tempted to again start purchasing diesel in Delhi.

1 comment to Delhi Government forced to reduce the VAT on diesel, after finding that people voted with their feet

  • kp

    today there is debate in parliament on price rise. the government is on its toes, but will not reduce the taxes. if there are lower central taxes, the vat incidence itself will come down. making states fight is no good way to deal with such issues.

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