The Hindu : New Delhi News : Govt. to roll back VAT on diesel, LPG

Online edition of India's National Newspaper
Wednesday, Apr 27, 2005

New Delhi

New Delhi

Govt. to roll back VAT on diesel, LPG

Sujay Mehdudia

Life-saving devices to cost more now

NEW DELHI: Even as the Delhi Cabinet sits down on Wednesday to give its approval for rollback of the proposed new Value Added Tax (VAT) on diesel and LPG cylinders, all life-saving devices and vaccines are expected to become costlier as the Government has decided to do away with the earlier tax exemptions on them and impose 4 per cent now. At the same time, all information technology gadgets, including mobile phones and compact discs, would become cheaper with VAT on them being lowered from 12.5 per cent to 4 per cent.

The Cabinet is likely to roll back the tax on diesel from the present 20 per cent to 12.5 per cent. Similarly it is expected to approve the rollback on LPG cylinders from 12.5 per cent to 4 per cent, resulting in a loss of Rs. 40 crores per year to the Exchequer. Since the introduction of VAT on April 1, LPG cylinders had become costlier by Rs. 13.

A section within the Government is of the view that tax on diesel should be brought down to 16 per cent instead of 12 per cent and it would still end up earning substantial revenue. If the tax is totally rolled back, then the Government would stand to lose Rs. 150 crores, a situation that could aggravate the financial crunch. Interestingly, all petroleum products have been brought out of the VAT net.

"All the three States of Himachal Pradesh, Haryana and Punjab have refused to concede ground on taxing diesel. They made it clear that they would not increase tax on diesel as it would affect the farmers in their States. Therefore, the Cabinet will meet tomorrow to give its stamp of approval to the diesel rollback and also take a decision on LPG and sweetmeats," said the Delhi Finance Minister, A.K. Walia, on Tuesday.

The Government's announcement of exempting all life-saving drugs from VAT has also run into trouble with the Empowered Committee on VAT yet to give its approval. It is understood that a decision on this would be taken some time next month. On the other hand, all life-saving devices and vaccines that had been exempted would now be taxed at 4 per cent. They will include insulin, glucometers, strips, syringes, medicines, drugs and other medical equipment. In addition, it was also decided that all kinds of bread, salt, khadi garments, gur, jaggery, animal feed, sattu, kuttu ka atta and sangara would be exempted from VAT. However, cottage cheese, pressure cookers, pans, bicycles, tri-cycles and bicycle tyre tubes, metal casting, toys, honey, oilseeds and edible oils would attract 4 per cent VAT.

The Government has come under tremendous pressure from the diesel lobby not to raise the tax to 20 per cent, resulting in a re-think.

Interestingly, it will be the second time in one year that the Government would roll back the tax on diesel as Dr. Walia had announced a similar hike in his Budget last year, but was forced to withdraw it following pressure from the petrol pump dealers.

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