At present, the retail price of petrol in Mohali stands at INR 97.01 per litre and diesel is priced at INR 87.21.
Already, the fuel is more expensive in Punjab than in Chandigarh.
In the Union Territory of Chandigarh, prices of petrol and diesel are INR 94.24 and INR 82.40 per litre, respectively.
Fuel pump owners strongly condemned the decision of the AAP-led government, saying it would hit their business hard.
They further said it is the third time that the Bhagwant Mann-led government raised fuel prices in the past two-and-a-half years.
Addressing the media after the Cabinet meeting, Finance Minister Harpal Singh Cheema said the decision has been taken to raise VAT on petrol and diesel.
He said VAT on petrol will be raised by 61 paise and 92 paise a litre for diesel.
Cheema said the hike in VAT on fuel will lead to an increase in revenue by INR 395 crore from diesel and INR 150 crore from petrol.
Reacting to the hike in VAT on fuel, Petrol Pump Dealers' Association, Punjab, spokesperson Monty Sehgal criticised the state government's decision.
He said with the hike in VAT on fuel, the sales of petrol and diesel located in border districts will be impacted as their business will shift to neighbouring states where the fuel is less expensive.
Mohali-based fuel pump owner Ashwinder Singh Mongia said this move will encourage more "smuggling" of fuel which will ultimately lead to a reduction in tax revenue to the state.
He said fuel in Himachal Pradesh and Jammu and Kashmir is cheaper than in Punjab.
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