States want Rs 4,000 cr as fuel duty cut damages

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States have asked the Centre to pay them Rs 4,000 crore for the revenue loss due to duty cuts on petrol, diesel and cooking gas during the remaining part of 2008-09. Various states have reduced sales tax on fuel products to lower the impact of a hike in petrol, diesel and LPG.

Following the Centre’s decision to effect hike in petro products, many states have reduced sales tax and VAT on petroleum products to partly neutralise the impact of price hike, chairman of the empowered group of state finance ministers on VAT Asim Dasgupta told reporters here on Monday.

He said these duty reductions are likely to result in a revenue loss of Rs 8,000 crore during the remaining part of 2008-09. "We want 50% of this loss incurred by states to be shared by Government of India," he said

While 10 out of 33 states and Union territories have reduced sales tax on petrol, 15 states have reduced levy on diesel, he said. Pointing out that a wrong message is going to people that states can bear this loss, Dasgupta, Dasgupta, who is also the finance minister of West Bengal, said, "States cannot take the beating further. They have limited revenue raising powers."

On the issue of reducing tax on aviation turbine fuel, he said, the VAT panel has sought data on price fixation from the Union government. The committee will take a view on ATF tax reduction at its meeting scheduled between 21-23 June in Srinagar. Dasgupta said it was the unanimous decision of the panel to ask the Centre to share half of states' burden on tax and duty cuts on petroleum products.

The panel also wanted to know from the Centre the exact policy of price fixation of petroleum products and as to why prices of basic products differ among states. "We want basic prices to be uniform across the states," he said.

On civil aviation minister Praful Patel's demand of bringing ATF under declared goods category, which attracts 4% sales tax, Dasgupta said the panel has sought details on price fixation of the fuel from the Centre.

After getting the details, the committee will discuss the issue at its Srinagar meeting between June 21-23 .

After a month from now, the panel would also discuss financial relations between the Centre and the states in view of the 13th Finance Commission's interaction with states.

On deviation by some states that they should impose at least 20% sales tax on petrol and diesel, Dasgupta said, "States are facing difficult, volatile times because of rising inflation and their responsibilities on expenditure front. We should allow states some time for adjustment (to 20% tax rate). This is not the time."

Some states are deviating from the floor rate principle of 20% on petrol and diesel. For example, Haryana is imposing 14% sales tax on petrol and 8.8% on diesel.

Dasgupta said while states get one-third of tax revenues, they incur 80% of developmental costs like those on health, education and roads. To bail out oil marketing companies, which are suffering losses due to surging global crude oil prices, the Centre had on June 5 announced a hike in prices of petrol, diesel and LPG by Rs 5 a litre, Rs 3 a litre and Rs 50 a cylinder, respectively.