Anil Kumar Sastry

Diesel sale shoots up in neighbouring States where tax rates are lower

Karnataka could be losing Rs. 400 crore in tax on oil

Truckers prefer to tank up on the other side of border

BANGALORE: Although Karnataka Government could on paper earn around Rs. 360 crore more because of the recent fuel price increase through sales and entry tax, in practice the State may actually lose revenue. The lower tax rates in neighbouring States have driven customers, particularly truckers, to those States, reducing volume of sales of diesel in Karnataka.

For example, after neighbouring Maharashtra reduced the sales tax on diesel by 2 per cent from 27 per cent in 2006-07, diesel sales grew by 30 per cent. Public sector oil companies sold 4,048.6 TMTs (thousand metric tonnes) of diesel in 2007-08, up from 3,113.2 TMTs sold in 2006-07 in Maharashtra and Goa.

Growth difference

Other neighbouring States too registered moderate growth.

In the same period, Tamil Nadu (24.43 per cent sales tax) registered 14.6 per cent growth, and Andhra Pradesh (22.25 per cent sales tax) registered 13.4 per cent growth.

On the other hand, in Karnataka, where the sales tax and entry tax together is 26 per cent, the growth had been only 5.2 per cent – from 2,058.4 TMT to 2,166.2 TMT — during the relevant period.

After Wednesday’s price increase, Maharashtra and Tamil Nadu slashed sales tax rates by a further two per cent on Thursday following a call by United Progressive Alliance (UPA) Chairperson Sonia Gandhi.

This, oil marketing company officials feel, will further reduce the volume of sales in Karnataka.

PSU oil companies in Karnataka sell nearly 2.5 lakh kilo litres of diesel every month.

This could have touched 3 lakh KL had the tax rates in the State been more competitive, officials claimed.

In its zeal to earn more by maintaining high tax rates, the State Government is losing in the range of more than Rs. 400 crore to neighbouring States, the officials said.

Growth or reduction in diesel sales in Karnataka is mainly driven by thousands of inter-State truck operators who use national highways in the State as thoroughfare — from North and West to Tamil Nadu and Kerala and vice versa. Federation of Karnataka State Lorry Owners’ and Agents’ Association president G.R. Shanmughappa pointed out that these truckers as well as those near the borders preferred to fill their tanks to the brim in the borders instead of in Karnataka.

Attractive prices

After the June 5 fuel price increase and before Maharashtra reduced the sales tax by 2 per cent, diesel was available at Rs. 38.91 a litre at Kagal in Maharashtra and at Rs. 40.19 at Kognoli in Karnataka, both on National Highway 4.

Similarly, it was available at Rs. 38.74 at Nandini in Maharashtra and at Rs. 39.97 at Dhulkhed in Karnataka, both on National Highway 13. The difference in price by Rs. 1.26 and Rs. 1.22 respectively, will naturally drive truckers, who fill at least 75 litres of diesel, to pumps in Maharashtra, the officials noted.

However, Karnataka Commercial Taxes Commissioner B.A. Harish Gowda did not agree with oil companies’ argument.

Mr. Gowda told The Hindu that the shift in business could be marginal and truckers would not wait till the border to fill his tank.

He said the expected Rs. 360 crore revenue on account of fuel price increase was already built into the department’s target for the current financial year.