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Centre may pillion tax-cut drive
June, 17th 2008

State governments on Monday asked the Centre to share at least half of the Rs 8,000-crore revenue loss they would incur on account of reducing duty on petrol, diesel and cooking gas this fiscal. State governments, which obliged the central government by reducing taxes on petro products, have limited power to generate resources, empowered group of state finance ministers on VAT chairman Asim Dasgupta said here.

While reducing the duties on crude, petrol and diesel on June 4, forfeiting Rs 22,660 crore a year, prime minister Manmohan Singh had asked state governments to slash sales tax rates on fuel. States such as West Bengal, Kerala, Tamil Nadu, Maharashtra, Haryana, Bihar, Gujarat, Andhra Pradesh, Delhi, Orissa, Uttarakhand and Goa immediately obliged Mr Singh.

Several states, confronted with the unusual situation (of the price increase of petro products), have decided to reduce sales tax on petrol and diesel, and cut VAT rate on LPG or to provide subsidy, Mr Dasgupta told reporters. He added that due to cut in sales tax on petrol and diesel, VAT on LPG as well as reduction in devolution to them caused by the Centres decision to cut Customs and excise duties on petrol and diesel, states would lose Rs 8,000 crore.

We want 50% loss incurred by states to be shared by the government of India, he said after a meeting of the empowered committee. He said a wrong message was going to the people that states were prepared to take the losses. States cannot take this beating. They have limited revenue-raising power and huge developmental responsibilities, he said.

The Centre had raised prices of petrol, diesel and LPG by Rs 5 a litre, Rs 3 a litre and Rs 50 a cylinder, respectively, from June 4 midnight. In addition, the government had slashed import duty on crude to zero, on petrol and diesel to 2.5%, and on jet fuel and other products to 5%. It also slashed excise duty by Re 1 a litre on petrol and diesel.

The duty cuts were announced to avoid a sharper price hike. The price increase anyway would only help oil companies to reduce their losses by 8%. According to Mr Dasgupta, 10 of the 33 states and Union territories have cut sales tax on petrol while 15 have reduced sales tax on diesel. Some states like Delhi have cut only VAT on LPG.

The committee also asked the civil aviation ministry to give details of how prices of aviation turbine fuel (ATF) are fixed. Civil aviation minister Praful Patel last week made a strong case for giving ATF declared-good status in a meeting with prime minister Manmohan Singh and finance minister P Chidambaram. We will discuss the issue at the panels next meeting in Srinagar during June 21-23, after getting full details of price fixation of ATF from the concerned ministry, Mr Dasgupta said.

On account of the high jet fuel price, domestic airlines have been losing money and are heading towards a financial crisis. Twenty-four airlines across the world have gone bankrupt due to spiralling fuel prices. Domestic carriers, which are estimated to have lost Rs 4,000 crore in 2007, are expected to register an accumulated loss of Rs 8,000 crore in the current fiscal.

Jet fuel prices have increased 100% in the last year. ATF prices have gone up from Rs 21,000 per kilolitre in 2004 to more than Rs 70,000 now. Mr Patel last week said that urgent steps were need to bail out the aviation industry.

 
 
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