States urged to cut sales tax on fuel

The government today exhorted state governments to cut sales tax on diesel and petrol, while ruling out any rollback in the new prices announced on Monday.

The government will grant limited freedom to PSU oil firms to raise prices if Brent crude prices rise above $75.

A top oil ministry official told reporters on Wednesday that for every $1 increase in Brent prices, oil firms would be allowed to raise the price of petrol by 39 paise, diesel by 30 paise, kerosene by 36 paise and cooking gas by 67 paise per cylinder, the official said.

"The package announced on June 5 takes care of the oil companies if Brent prices are up to $75 a barrel. If the prices rise further, oil companies can raise prices," the official said.

Petroleum Minister Murli Deora came down heavily on the states for charging high sales tax. "In the case of Maharashtra, the sales tax on diesel is as high as 37 per cent and 30 to 34 per cent on petrol," he said.

The minister made a pointed reference to West Bengal, which has been at the forefront of protests against the price hike. The Left bastion levies a 27 per cent sales tax on petrol.

The minister had already written to the chief secretaries of all states, requesting them to reduce sales tax, Petroleum Secretary MS Srinivasan told reporters.

Lamenting the high burden on consumers, Deora said the Centre had done its bit by issuing Rs 28,000 crore of bonds and reducing customs duty from 10 per cent to 7.5 per cent.

He pointed out that higher prices would automatically result in greater sales tax revenue for states. "It is the state government's turn to reduce the burden on consumers," sources added.

Deora met the chief executives of various public sector oil marketing companies in the morning. He then met Prime Minister Manmohan Singh on the matter.

After the meeting, he said as far as his ministry was concerned, the matter was closed. Sources added that the prime minister too did not favour a roll-back.

Deora said the Rs 4 per litre increase in petrol prices and Rs 2 per litre price hike in diesel was done after widespread consultations within the UPA government, including all allies.

"We have tried hard to pass on the least possible hike. We will make people understand the hardships caused by rising international oil prices. The required hike was much more than what has actually been done," he said.

Meanwhile, the petroleum ministry has launched an ad campaign to justify the price hike. This is one of its attempts to convince consumers that the move was inevitable in order to save public sector navratna oil companies from bankruptcy.