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Public want govt to slash VAT on fuel
January, 18th 2011

The de-regulation of petrol prices has introduced people to a regime of market economics, where prices are determined by demand and supply. As crude prices have crossed $90-mark and set to touch $100 per barrel, people in Rajasthan have once again started asking why can't the government reduce high  VAT rates to cushion the spike. The government of Rajasthan levies a VAT rate of 28% on petrol and 18% on diesel.

When ToI contacted C K Mathew, principal secretary, finance, to find out if the government is planning to bring down VAT rates in the coming state budget, he said, "I cannot say anything at this moment." However, he said that Rajasthan government's VAT rates on fuel are lower than many states.

Every time petrol prices go up, the governments' (Both Central and state) tax kitties get a boost. While it's win-win situation for the companies and the governments, the consumer remains a perennial loser.

Today, if the retail cost of petrol is Rs 52 per litre, 50% of that price is due to various taxes. While the Centre imposes taxes like customs duties, excise, and cess constituting 25%, taxes at the state level in the form of VAT, dealer commission, and transportation cost, account for another 22-24%.

The recent increase of petrol price by Rs 2.50 per litre is expected to swell the coffers of the state. Speaking to ToI, Niranjan Arya, Commissioner of Commercial Tax, said, "The recent rise in petrol prices will bring additional revenues of Rs 6-7 crore per month to the state government."

Since the petrol prices were freed, the consumers have been on the wrong side of the de-regulation regime.

The decision came when international crude prices were rising. Since then, prices of the commodity have only gone up and consumers have been at the receiving end regularly. This explains why consumers are up in arms against the market-determined system and its unsavoury effects.

Jaipur-based businessman Kuldip Handa feels that this de-regulation should have been brought in when the crude prices were falling during the recession. This could have given people an opportunity to enjoy the benefits first and a reason to accept this new mechanism. Crude prices had touched $35 per barrel during the recession. Now, people see de-regulation as a monster that the government has unleashed to protect the interest of the state-run companies at the cost of the consumers, adds Handa.

But the consumer's anger is not without a reason. They are not entirely against the linking domestic rates to international prices. They say the devil lies in the high tax rates. Their point is that why the government doesn't consider linking tax rates to crude prices, meaning if oil prices go up, the taxes should also come down proportionately. This will also protect the interests of the companies.

"Reducing or raising taxes according to crude price movement is an option the governments need to look at. This way, even if the oil marketing companies raise prices, the actual rates won't rise because the same amount of tax would be slashed," says an official of an oil marketing company in the city, who preferred to remain anonymous.

Even though the anger among people is rising faster than the prices of commodities, the government knows it has time on its side (close to 3-years) to douse the fire and regain the confidence of the voters for another mandate.

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