Nitish Kumar

Patna, Sept. 20: Bihar has taken the lead in forgoing state revenue earned from diesel by cutting VAT on the fuel by two percentage points.

Diesel in the state will be cheaper by 85 paise following the government’s decision today to reduce VAT on the fuel from 18 per cent to 16 per cent. The new price of diesel, effective from midnight tonight, will be Rs 50.15 per litre.

Chief minister Nitish Kumar said the VAT cut would lead to a revenue loss of Rs 118 crore for the remainder of the current financial year for the state.

“We have reduced VAT from the current 18 per cent to 16 per cent on diesel. This would lower diesel prices by 85 paise per litre in the state. We have done whatever maximum we could have to give relief to our people,” Nitish told reporters after emerging from the special cabinet meeting convened to take a decision on VAT.

The cabinet meeting was scheduled for 6pm, when the dawn-to-dusk bandh called by the NDA and the Left parties against the diesel price hike, LPG cap and FDI in multi-brand retail ended.

Nitish had announced on Tuesday that his government was considering providing some relief to the people on diesel, whose price had increased to Rs 51 per litre. The Centre had on September 13 raised the price of diesel by Rs 5 per litre and capped subsidised LPG cylinders to six in a year for every household.

Asked whether his government would consider increasing the cooking gas cylinder cap to nine as announced by Congress-ruled states, the chief minister said “there is no scope left to give any relief on LPG”.

“Congress-ruled states have taken a decision but it is yet to be seen how they would do it or implement it,” he added.

Nitish said today’s bandh was “spontaneous” as the people had been severely affected by the decision of the Centre and he was making an effort to reduce some of the burden.

Following the hike of Rs 5 on diesel, the state government stood to earn Rs 7.78 from state levies — a gain of 90 paise. With today’s VAT rate cut, the government has tried to offset that gain.

Principal secretary, cabinet coordination, Ravikant said the VAT cut would lead to a total loss of Rs 217 crore per annum for the state.

Bihar has twice reduced VAT on diesel — first in 2008, from 20 per cent to 18.36 per cent, and again in June 2011, when the tax was cut to 18 per cent.

Members of trade and industry said the VAT cut was a “progressive decision”, though farmers and homemakers felt the government could have given some more relief.

Bihar Chamber of Commerce president O.P. Sah said: “It is a welcome step. At least people would get some relief with the reduction of 85 paise per litre of diesel. Something is better than nothing.”

Sudhanshu Kumar, a progressive farmer from Samastipur district, said the government ought to have done more. “At best one can call it a good gesture. Farmers were expecting more from the state government,” he said.

Anita Sharan, 38, a homemaker in Patna said a cut of less than a rupee was not much. “The government should not forget that housewives like us would be affected to great extent because prices of essential commodities like food grains, vegetables etc. would also increase,” she said.