Welcoming the city government move to lower VAT on diesel, oil minister Murli Deora today asked other states to follow suit and shit towards specific rates.
Deora complimented Delhi chief minister Shiela Dikshit for reducing value added tax (VAT) on diesel from 20 per cent to 12.5 per cent, resulting in a Rs 2.70 per litre fall in prices. He also expressed hope that other states would also follow Delhi's example to provide relief to consumers.
Last month's increase in fuel prices had a cascading effect on retail rates paid by consumers due to the ad valorem nature of the state sales tax.
"VAT is levied by states 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, endering the product even more expensive," Deora said in a statement, adding, "to address this issue, the ad valorem component of the VAT can be converted into a specific component, at pre-price hike levels," he said.
Deora said the Central excise duty on petrol and diesel has been converted into fixed rates while the excise and customs duty on kerosene and LPG has been reduced to nil.
Andhra Pradesh levies the highest VAT of 33 per cent on petrol in the country, followed by Tamil Nadu, where it is 30 per cent.
Kerala, which levies 29.01 per cent VAT on petrol, has the highest tax rate for diesel at 24.69 per cent.
Puducherry has the lowest VAT on petrol in the country at 15 per cent, while Haryana and Punjab have the lowest rates for diesel at 8.8 per cent.
"The VAT rates are very high in most of the states, and need to be reduced," Deora said, and added the high VAT rates in many states further compound the increase in basic prices. Bihar levies 12.5 per cent tax on PDS kerosene.
The government had last month raised petrol price by Rs 3.50 a litre, diesel by Rs 2 per litre, domestic LPG by Rs 35 per cylinder and kerosene by Rs 3 a litre.