Centre has rejected the demand of states for sharing half of their Rs 8,000-crore burden this fiscal -- incurred after they cut sales tax on petroleum products to minimise the impact of the fuel price hike announced by the Union government in June, sources said.
The finance ministry did not find merit in the states' demand and hence rejected it, official sources said.
As many as 10 of the total 33 states and Union territories have reduced sales tax on petrol, while 15 have cut the levy on diesel. The decision followed appeal by the Prime Minister Manmohan Singh and other states to share some burden after prices of petrol, diesel and LPG were hiked in the first week of June.
Empowered Committee of State Finance Ministers on VAT had earlier in August said that states would lose close to Rs 8,000 crore this fiscal as they cut sales tax on petrol and diesel and also from the cut in their share of devolution due to the Centre's decision to reduce customs duty and excise tax on petroleum products.
States had asked the Centre to share half of this burden.
However, sources said the estimated losses by states are notional as they are also earning more revenue owing to a rise in prices of petrol, diesel and LPG as the taxes are ad- valorem in nature and fetch more money when prices rise.
The states are computing the losses on the basis of what they could have earned if they did not cut sales tax at the new prices of petrol, diesel and LPG. Besides, all states have not cut taxes, they added.