Petroleum minister Murli Deora has written a letter to chief ministers of  the states appealing them to lower the VAT rates on  petroleum products to minimise the impact of price hike.

The central government is considering to freeing the prices of petrol and diesel which is likely to result in increase of Rs 3.8 per litre.  In his letter Deora has stated, “A rise in the international oil prices exerts an upward pressure on domestic prices of petroleum products. Ad valorem rates of VAT imposed by the state government further aggravates the impact of international oil prices on the consumers.”

Andhra Pradesh levies the highest sales tax of 33 per cent on petrol in the country, followed by Tamil Nadu, where it is 30 per cent. Kerala, which levies 29.01 per cent VAT on petrol, has the highest sales tax rate for diesel at  24.69 per cent. Puduchery has the lowest sales tax or VAT on petrol in the country at 15 per cent, while Haryana and Punjab have the lowest rates for diesel at 8.8 per cent.

Any increase in fuel prices by oil companies has a cascading effect on retail rates paid by consumers due to the ad valorem nature of the state sales tax.  The VAT rates are very high in most of the states, and need to be reduced,” Deora said.

Deora suggested to the state governments, instead of levying VAT on ad valorem basis, VAT can be converted in to the specific component at current levels.

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