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Govt may not compensate states for petrol revenue loss

Govt may not compensate states for petrol revenue loss


New Delhi: The Centre may not accept the demand of states that it share half of their 8,000 crore revenue loss due to cut in sales tax on petroleum products, announced after the rise in administered prices of these fuels, sources said.

However, the Union Government is still examining the issue and yet to take a final call on the demand, sources said.

Empowered Committee of state finance ministers on VAT had earlier this month said that states would lose close to 8,000 crore this fiscal following the cut in sales tax on petrol and diesel.

The loss would also be on account of cut in their share of devolution following the Centre’s decision to cut customs and excise tax on petroleum products.

States have asked the Centre to compensate half the amount they would be losing.

“Several of the states, confronted with this unusual situation (of the Centre’s move to raise prices of petro products), have taken the decision to reduce sales tax on petrol and diesel and cut VAT rate on LPG or to provide subsidy. We want 50% of this loss incurred by states to be shared by Government of India," VAT Panel Chairman Asim Dasgupta had said.

The sources said the estimated losses by states are notional as they are also earning more revenue due to rise in prices of petrol, diesel and LPG as the taxes are ad-valorem in nature and fetch more money when prices rise.

The states are computing the losses on the basis of what they could have earned if they did not cut sales tax at the new prices of petrol, diesel and LPG. Besides, all states have not cut taxes, they added.

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