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Sales tax on diesel, LPG set to be cut

business Updated: Jun 27, 2011 01:17 IST
Anupama Airy
Anupama Airy
Hindustan Times
Anupama Airy

Both diesel and cooking gas prices in Delhi may come down a bit after last week's hefty hikes as the state government has assured tax reductions to cushion the blow.

In Delhi, where diesel now costs Rs 41.12 per litre after the price hike, the government gets 12.5% as sales tax, or around Rs 5 per litre, as revenue. However, the expectation is of a Rs 1.5 to Rs 2 relief as diesel is a key revenue earner for the government.

In the case of cooking gas, the 4% value-added tax may be waived, resulting in a relief of Rs 16 per cylinder that now costs Rs 395. The exact quantum of the relief in both cases will depend on specific cabinet decisions.

Other states may also follow suit with similar relief measures as the Centre called on Sunday for steps to cushion the price hike last weekend when the government moved to align local prices in line with international oil prices.

Delhi and Kerala, both governed by the Congress, have taken the lead.

"We have asked all states especially our party-ruled states to consider tax reduction and Delhi's chief minister, Sheila Dikshit and Kerala's chief minister Oommen Chandy have already responded by saying they are studying the implications and will soon take the issue of reducing taxes to their respective cabinets," a senior union minister told HT.

He said the move would also put pressure on states ruled by the opposition parties such as Tamil Nadu, UP, Madhya Pradesh, Bihar and Karnataka.

"A formal letter on the issue is being sent by finance minister Pranab Mukherjee to all state governments," the minister said.

The Centre had on Friday increased diesel prices by Rs 3 per litre, cooking gas by Rs 50 per cylinder and kerosene by Rs 2 per litre.

At present, sales tax rates on diesel within India are high and constitute as much as 20% of the consumer price.

Any increase in diesel prices has a cascading impact on transport and farming costs, leading to higher prices of food and other essential commodities.

In the case of cooking gas, which is a subsidised fuel, states levy a VAT (value-added tax) at the rate of 4% to 5%, resulting in a levy of Rs 16 to Rs 20 per cylinder of LPG.

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