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Let us tax a major service or compensate
September, 25th 2006
Rationalisation of commercial taxes across states has been partially accomplished with the introduction of Value Added Tax (Vat), but states continue to tax petroleum products at varying rates. Andhra Pradesh (AP) still charges sales tax at 33% on petrol and 22.25% on diesel, after bringing it down 1% as suggested by the petroleum minister Murli Deora a few months ago. The reasonIf the tax rate on petroleum products were to be reduced, states own resources would fall drastically, as they contribute about 30% to 40% of the total tax revenue the states collect annually. Of APs total tax revenue of Rs 12,570 crore in fiscal 2005-06, about 35.67% came from tax on petroleum products. Any reduction in the tax rate would, therefore, upset the state governments finances. APs minister for commercial taxes K Ramakrishna says that AP has reported an impressive growth rate in revenue collections of other products compared to petroleum products. As on August 2006, taxes from other products reported a growth of 39%, while motor fuels registered a growth of 30% over last year. Thanks to increased economic activity, coupled with good rains and increased agricultural production, the state has reported exemplary performance in tax revenue collections till August and we hope that it will continue for the remaining part of the current fiscal too, said Ramakrishna. He added that the state had decided to rationalise the tax rate under Vat. It has already removed tax on salt and other 80 and odd mass consumed products and plans to continue the same. AP still charges 33% ST on petrol and 22.5% on diesel, after lowering it by 1% as Deora had suggested State govt says it will be years before petro-products come under Vat Rationalisation is a continuous process and we will try to reduce controls and improve voluntary compliance methods, the minister said. While agreeing that there should be a uniform tax rate even on petroleum products, and that it has to be brought under the Vat regime, the minister said, it would take another few years, as the tax reforms have to be undertaken on a cross-state consensus basis. Though originally AP wanted compensation for losses due to implementation of Vat, subsequently, as revenues increased, it decided to forgo the losses. The state is now demanding the compensation for removal of CST, which was discussed in the just concluded Empowered Committee of Ministers Conference. While the Centre is willing to pass on some of the services (about 70) to the States List in lieu of the compensation, state governments are demanding cash compensation, as the proposed services would not be financially viable. Either a major service should be transferred to the States List or cash compensation should be provided, Ramakrishna said.
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