NEW DELHI: Congress president Sonia Gandhi's directive to the Congress-ruled States to slash Value Added Tax (VAT) on the hiked prices of diesel and petrol has put the Delhi Government in a quandary. Despite several rounds of consultations on Monday, it failed to come out with a clear decision on the issue as fears of revenue shortfall put brakes on the proposed tax cut.

"We are still studying the whole situation and what has been done by other Congress-ruled States. Some States have announced tax cuts but the same have not been notified by any of the States. As VAT regime is involved, a lot of complications have to be cleared before any decision is taken," remarked Finance Minister A.K. Walia, who returned from an official trip abroad last night.

Officials maintained that it was unfair on the part of the Union Government or the Congress high command to direct the State Governments to undertake tax cuts to provide a "meagre relief'' to the consumers. Instead, they suggested that the Union Government should have rationalised the tax regime for petroleum products, as any such cut would mean huge revenue loss for the already cash-strapped States.

However, highly placed sources informed that it was the massive loss of revenue from such a move that has made decision-making very difficult for the Congress Government. It is understood that both diesel and petrol generate around Rs. 1,500 crores in revenue annually and to forego such massive revenue could have an adverse impact on the developmental projects to be taken up in the Capital in the coming days.

Another fear was that the neighbouring States of Haryana, Punjab and Himachal Pradesh have not yet taken any decision on the tax cut issue and Delhi was not in a position to have a unilateral cut in VAT as per the wishes of the Congress president.

While petrol is taxed at 20 per cent VAT in Delhi, diesel attracts 12.5 per cent VAT. Under the circumstances, even if the 12.5 per cent VAT is withdrawn on the hiked rate of Rs. 2 per litre on diesel it would only lead to a 25 paise reduction in its price, an amount that would be too small.

The Delhi Cabinet will meet on Tuesday to take a final decision on the matter.

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