Aimed at generating additional revenue, the Punjab government has decided to impose a 90 paise per litre VAT on petrol and diesel in a meeting of the state cabinet here on Friday.

When asked if any cess has been imposed on petrol and diesel, Housing and Urban Development Minister Aman Arora said, "Cess (VAT) has been imposed".

He was speaking to reporters after the cabinet meeting.

"Cess (VAT) has been imposed because, for a long time, its need was felt.. and I think Punjab today needs revenue generation," he said.

When asked how much cess has been imposed, Arora said it will be 90 paise per litre on petrol and diesel.

The cabinet met here under the chairmanship of Chief Minister Bhagwant Mann.

"The Cabinet gave its approval for a marginal increase in the VAT rate levied on the sale of petrol and diesel in the state. The increase in the VAT rate will lead to a marginal increase in the price of petrol and diesel by approximately 90 paise per litre.

"This will bring more parity in prices of Petrol and Diesel in comparison with neighbouring states," said a Punjab government statement after the cabinet meeting.

Notably, with this move, the cash-strapped state government is eyeing to mop up additional revenue. This is the first tax on fuel imposed after the Aam Aadmi Party came to power last year.

Earlier in November 2021, three months before the February 2022 state assembly polls, the then Congress-led government in Punjab had lowered the VAT on petrol and diesel, making them cheaper by Rs 10 per litre and Rs 5 per litre in the state.

Ashwinder Singh Mongia, an executive member of the Petroleum Dealers Association of Punjab, on Friday said that diesel was already much cheaper in some of the neighbouring states and the move will further widen the gap.

Now, with the imposition of VAT, the state government hopes to mop up Rs 300-400 crore per annum, he said.

Mongia said before the increase, the petrol rate in Mohali on Friday was Rs 97.11 per litre and it will be over Rs 98 per litre from Saturday.

On Friday, diesel cost in Mohali was Rs 87.44 per litre and now it will cost over Rs 88 per litre, Mongia said.

He said the fuel prices slightly vary between 10 paise to 25 paise in different parts of the state depending on transportation costs.

Giving price comparisons for diesel in neighbouring states as of Friday, Mongia said in Chandigarh per litre diesel was Rs 84.26, in Himachal's Baddi it was Rs 84.67, in Jammu it was Rs 83.26, while petrol in Chandigarh was Rs 96.20 per litre, in Baddi it was Rs 95.26 and in Jammu, it was Rs 97.50 per litre.

He said the tax component on fuel in Punjab state at present includes "existing cess on diesel in the state is Rs 1.05 per litre while on petrol it is Rs 2.05 per litre while on both fuels 10 paise per litre is urban transport fund and 25 paise per litre special infrastructure development fee".

Specifically talking about diesel, he said the price gap with other states will encourage its smuggling.

Mongia, who is also President of the Mohali Petroleum Dealers Association, said before the polls, AAP had assured that if voted to power, they will make VAT on fuel at par with neighbouring states.

"Petroleum Dealers Association of Punjab had proposed to the AAP before last year's polls that if they can make diesel prices alone at par with neighbouring states, the VAT collection will increase by Rs 1,000 crore per year," he said.

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