State may reduce sales tax on fuel

In Karnataka, state taxes on fuels are ad valorem and move in proportion with any rise in petroleum prices. Every time the Centre effects a hike in petrol and diesel prices, the State government laughs its way to the treasury as state taxes are imposed on the basic price.

For instance, the State earned an additional revenue of Rs 600 crore during the last fiscal year due to petrol and diesel price hikes - Rs 350 crore from diesel and Rs 250 crore from petrol, official sources said. A confirmation on the additional revenue due to Thursday’s hike of petrol prices is awaited from the finance department. The last time the state government slashed sales tax on petrol and diesel was in 2008.

The state has kept auto fuels out of the Value Added Tax (VAT) regime and charges 25 per cent sales tax on petrol and 18 per cent sales tax on diesel. In addition, there is a five per cent entry tax that is levied on every litre of petrol or diesel coming into the state. The sales tax component is one of the highest among states in the country.

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