New Delhi, Jul 30 (IANS): In a major relief to fuel consumers in the capital, the Delhi government on Thursday reduced VAT on diesel from 30 per cent to 16.75 per cent per litre making the transport fuel cheaper by Rs 8.36 per litre.

With this, pump price of diesel will now come down to Rs 73.64 a litre from the existing level of Rs 81.94 -Rs 82. Petrol will continue to be priced at Rs 80.43 a litre as there is no change in state taxes on it. The price change would be reflected from Friday when retail prices are revised by oil marketing companies.

Briefing about the decision of the Delhi Cabinet in a Press Conference, Chief Minister Arvind Kejriwal said, "We were receiving demands from many sectors in delhi to reduce the VAT on diesel. This cut will strengthen the economy in Delhi."

Delhi was the only major city in the country where diesel prices were higher than petrol. While diesel is priced at Rs 81.94 a litre here, petrol is holding back the same price since June 29 at 80.43 a litre.

The Rs 1.5 a litre differential had led substantial loss of business to pump operators in Delhi as vehicles were getting diesel filled in neighbouring Haryana and Uttar Pradesh. The Delhi Petroleum Dealers Association (DPDA) has written a letter to government earlier to reduce the VAT as it is hampering their business in Delhi and had also threatened to stop operations.

Diesel in Delhi became expensive on May 5, when revenue starved Delhi government raised VAT on the fuel suddenly from 16.75 per cent a litre to 30 per cent raising pump prices by Rs 7.10 per litre in one go. The VAT on petrol was also raised from 27 to 30 per cent that increased its pump prices by marginal Rs 1.67 a litre then.

The present decision of the Delhi government has brought VAT rates on diesel to the same level that was prevailing before May 5.

Taxes on fuel is a rich source of revenue for state governments and accounts for almost a third of its total tax collections. With GST collections hit due to COVID-19 pandemic, taxes on fuel is an easier source to quickly raise revenue.