Date:04/07/2009 URL: http://www.thehindu.com/2009/07/04/stories/2009070456261500.htm

National

Rationalise tax on petrol, diesel: Deora

Special Correspondent

NEW DELHI: Petroleum and Natural Gas Minister Murli Deora has written to Chief Ministers of all States to rationalise the tax structure on petrol and diesel and do away with the ad valorem component of excise duty to protect the interests of consumers.

Mr. Deora pointed out the high tax on petroleum products, particularly petrol and diesel.

He cited the Delhi case, where 51.50 and 25.30 per cent of the retail prices of petrol and diesel comprised taxes and duties.

“Such high levels of taxation are clearly not desirable on essential commodities.”

The Minister said that in the current tax structure, sales tax/value-added tax was being levied by the State on an ad valorem basis — as a percentage of the price of the product. This meant that when oil prices were high, the tax on the products was higher. Thus, at a time of rising prices, ad valorem taxes had a cascading impact on the retail price.

To address this anomaly, the ad valorem component of the sales tax could be converted into specific or absolute component at current levels. The revenue of the States would not be hit by doing so, as the produce prices were now at a fairly high level, he pointed out.

The Central government had already done away with the ad valorem component of excise duty on unbranded petrol and diesel and the excise duty had been made specific with effect from March 1, 2008.

“It would be necessary for the State governments also to undertake similar tax rationalisation on petrol and diesel. Therefore, I would appeal to you to kindly have this subject reviewed at your level at an early date so that this much needed tax reform could be implemented. Levying specific sales tax instead of ad valorem rates will help us cushion the effect of the rise in international oil prices. While I appreciate your need for revenue mobilisation, the current high levels of local taxes on petroleum products are clearly unsustainable, if we are to protect the interests of the consumers, particularly the vulnerable sections of society,” Mr. Deora said in his letter.