The Hindu : Front Page : State cuts tax on diesel by 2 per cent

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Friday, Jun 06, 2008
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State cuts tax on diesel by 2 per cent

R.K. Radhakrishnan

M. Karunanidhi

CHENNAI: Chief Minister M. Karunanidhi on Thursday announced a 2 per cent reduction in tax on diesel in the State to counter the hike in prices of petroleum products announced by the Centre.

This will lead to revenue loss of Rs.260 crore a year. In addition, State Transport Corporations stand to add Rs. 210 crore to the losses as there is no move to raise bus fares.

Recalling the statement of Prime Minister Manmohan Singh, wherein he had said that States levying high tax rates should enforce cuts and absorb the petroleum price hike, Mr. Karunanidhi said when the Centre hiked fuel prices in 2006, Tamil Nadu was the first to cut sales tax, bringing it down from 25 per cent to 23.43 per cent.

Subsequently, the Centre lowered prices of petrol and diesel, but the State government did not restore the tax to the earlier, higher rate. Because of this, the government was losing Rs.200 crore each year.

Criticising former Chief Minister Jayalalithaa for refusing to reduce the tax on petrol and diesel when the Centre revised prices upward in 2004, Mr. Karunanidhi said it was the same person who was now advising the State government to reduce sales tax.

Tamil Nadu, along with many other States, has seen its revenue being eroded on account of three factors.

First, when the Centre reduced excise and customs duty, it took a hit (30 per cent of the Centre’s tax revenues are shared among States). “We had to sacrifice our revenue on account of the Centre’s decision. So it is wrong to say that States did not contribute in any manner,” a senior State government official said.

Secondly, the government announced the 2 per cent cut in sales tax on diesel and, thirdly, the loss on account of State Transport Corporations.

“The loss [on account of STCs] is about Rs.70 crore for every rupee increase in the price of diesel. The total loss will be about Rs.210 crore,” the official said.

Diesel prices

Following the reduction in sales tax, the price of diesel, with effect from midnight on Thursday, is Rs.37.13 a litre in Chennai; Rs.37.64 in Madurai; Rs.37.41 in Coimbatore; Rs.37.54 in Tiruchi, and Rs.37.50 in Salem.

After Wednesday’s increase, the price of petrol is Rs.55.07 a litre in Chennai; Rs.55.26 in Madurai; Rs.55.04 in Coimbatore; Rs.55.16 in Tiruchi and Rs.55.21 in Salem.

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