In a relief to the citizens of Maharashtra and Gujarat just ahead of Diwali, the two states have slashed value added tax (VAT)on petrol and diesel. The Gujarat government on Tuesday reduced the VAT on petrol and diesel by 4 percent, becoming the first state to announce a reduction in VAT while, the Maharashtra Cabinet has decided to slash prices of petrol and diesel by Rs 2 and Re 1 respectively, effective midnight.

The effective price of petrol in Gujarat from mid-night today will be Rs 66.53 per litre and that of diesel Rs 60.77 per litre, the chief minister added. The state government will have to take a hit of Rs 2,316 crore annually on back of VAT reduction.

The reduction in tax comes just before Diwali in the state, where the Assembly polls are due around the year-end. With this rate cut, the price of petrol will come down by Rs 2.93 and that of diesel by Rs 2.72 in the state, Gujarat Chief Minister Vijay Rupani said.

The lowering of tax in the poll-bound Gujarat follows Union Finance Minister Arun Jaitley recently writing to all state governments nudging them to reduce taxes on petrol and diesel.

In Maharashtra, the Devendra Fadnavis government also slashed VAT by Rs 2 a litre on petrol and diesel.

A Rs 2 per litre cut will cost the state exchequer nearly Rs 2,600 crore. The state currently levies 26 percent VAT on petrol and 24 percent on diesel in Mumbai, Thane and Navi Mumbai.

The Centre had recently brought down excise duty on petrol and diesel by Rs 2 per litre. Following the slashing of the excise duty on petroleum products, Oil Minister Dharmendra Pradhan had urged state governments to cut VAT on these products by 5 percent for passing on more relief to consumers.

While Gujarat is the first to cut VAT, the move has been opposed by Chhattisgarh and others. The Raman Singh-led Chhattisgarh government on Tuesday rejected Centre’s directive to cut VAT on fuel.

Meanwhile, Delhi deputy chief minister Manish Sisodia has said that he would bring down the VAT by more than that (that is, 5 percent) the day BJP-led states of Uttar Pradesh and Haryana did so themselves.

Maharashtra too had earlier rejected the Centre's suggestion to cut VAT saying that state's exchequer would not be able to bear the loss.

Besides Madhya Pradesh is also considering the option. Other states like Kerala and Odisha too have spoken out against lowering of taxes.