The Narendra Modi government at the Centre is receiving flak from the public over the sudden spike in fuel prices in a few weeks after the Karnataka assembly elections. If people are criticising Modi, it’s quite understandable considering how much they have to shell out for fuel: petrol is at Rs 85.65 in Mumbai and Rs 77.83 in Delhi—even after a small cut today.Many want the Modi government to cut taxes on fuel to bring down prices. The government has shown little intention to do that, which must have angered many consumers. While the Modi government has been rightly held responsible for not managing fuel prices well, a group of persons has completely escaped public attention—and criticism. Few have held chief ministers responsible for moderating fuel prices when they very well can. States are also pocketing taxes on fuel prices which they can forgo to bring down prices. Fuel prices vary from state to state depending on local sales tax or VAT. Delhi has the cheapest price among all metros and most state capitals.States can cut petrol price by Rs 2.65 per litre and diesel by Rs 2 a litre if they decide to forgo potential additional gains out of high crude oil rates, according to an SBI report. “Given that these revenue if foregone will not impact states fiscal position, we estimate that on an average, states can cut petrol prices by Rs 2.65/litre and diesel by Rs 2/litre, if the entire revenue gain was to be neutralised. This is the most plausible scenario under the current circumstances,” the report says.For further rationalisation of petrol and diesel prices, the report suggests to consider a pricing mechanism where VAT is imposed on base price only by states and not on prices inclusive of the Centre’s tax. With this, diesel prices could further reduce by Rs 3.75 a litre and petrol prices by Rs 5.75 per litre, it says.”However, if this was to happen, the state will have to forego Rs 34,627 crore of tax revenue / 0.2 per cent of consolidated fiscal deficit of states,” says the report. If the Centre cuts the excise by Re 1, the loss of revenue will be to the tune of Rs 10,725 crore for every Re 1 cut in central excise and the amount will become twice if it cuts the excise duty by Rs 2.