Deora asks states to rationalise VAT on petrol and diesel

Minister for petroleum and natural gas Murli Deora has called upon state governments to reduce the high duties levied on petrol and diesel and replace the varying ad valorem tax rates with a specific duty.

In a letter to the chief ministers of the various states, he said the high sales tax/ VAT rates over and above the rising international prices of crude oil exerts an enormous pressure on oil marketing companies in addition to its upward pressure on domestic prices of petroleum products. 

"Ad valorem rates of VAT imposed by the state governments further aggravates the impact of international oil prices on the consumer," Deora said.   

He said "the central government has provided financial assistance of Rs26,000 crore to the public sector OMCs, while the upstream oil PSUs have contributed Rs14,430 crore towards under-recoveries of OMCs during 2009-10," to ease the burden on the common man.

Detailing the VAT rates in different states, the minister said the rates are very high in most of the states, and need to be reduced. In some states, the VAT on petrol and diesel is as high as 33 per cent (Andhra Pradesh).

Further, he said, since under the current taxation structure, VAT is levied by the state governments on an ad valorem basis, ie, as a percentage of the price of the product, fuel prices tend to go even higher, rendering the product even more expensive.