Following the Delhi government's decision to reduce value added tax (VAT) on diesel in the Capital that will bring down its prices by Rs.2.70 a litre, Minister of Petroleum and Natural Gas Murli Deora has again appealed to the State governments to rationalise sales tax and VAT on auto fuels to give relief to consumers.
Complimenting Delhi Chief Minister Sheila Dikshit for responding positively to his appeal to reduce taxes on fuel, Mr. Deora said such steps would provide relief to the consumers from the additional sales tax levied as a result of recent price hike due to the ad valorem nature of the State taxes.
“I hope that other States would also follow Delhi's example to provide relief to consumers,” he said.
Rationalise taxes
Mr. Deora pointed out that if State taxes were rationalised, it would bring down diesel prices to a level lower than the prices that prevailed before June 25, when the fuel prices were hiked.
Interestingly, the Delhi Chief Minister was forced to slash VAT as the Capital's petrol pump owners were suffering losses due to higher rate of diesel in Delhi compared to neighbouring States where State taxes are lower.
Last month, Mr. Deora had written to all Chief Ministers urging them to reduce and rationalise sales tax and VAT on auto fuels — petrol and diesel. “In the current taxation structure, VAT is levied by the State governments on an ad valorem basis — as a percentage of the price of the product. This means that when oil prices are high, the taxation on the products is higher, rendering the product even more expensive.” .
“VAT rates are very high in most of the States, and need to be reduced. In some States, the VAT on petrol and diesel is as high as 33 per cent and 24.7 per cent, respectively,” he said. At a time of rising prices, ad valorem taxes have a cascading impact on the retail price of petroleum products.
A solution
To address this issue, the ad valorem component of the VAT can be converted into a specific component, at the current levels, the Minister added.
