Chaturvedi Panel Feels States Should Follow Centre's Example To Contain Petro Price Spiral STATES, which have earned a whopping Rs 65,000 crore as tax revenues from the oil sector in 2007-08 thanks to the high oil prices, may now have to relook at their tax structure. The high-level committee constituted by the prime minister to examine the fuel pricing in the country is of the view that the state governments should follow Centre's footsteps and adopt specific duty regime for petro products to remove the impact of spiral in prices. If the recommendation of the panel headed by former Cabinet secretary B K Chaturvedi is accepted, the Centre will ask state governments to rejig their duty structure and switch to specific duties instead of ad valorem. The other option being examined by the committee is a mix of both specific and ad valorem duties, sources told ET. In this case, the ad valorem component would be pegged at crude oil prices in 2005-06 when oil prices were hovering around $50-60 a barrel. Ad valorem duties are duties levied according to the value of goods and are expressed as percentages of value. Such duties are distinct from specific duties that are based on specific measures of goods such as number, weight, volume, area, capacity etc. There can also be composite duties that are partly ad valorem and partly specific. If the states switch over to a specific duty regime, they will not be able to reap the benefit of rise in prices. At present, sales tax on diesel and petrol varies across states from 9% to 33%. State governments collect Rs 60,000 crore from taxes on petro products. They also get Rs 30,000 crore from central taxes on petro products as part of the devolution. Policy makers at the Centre feel there was little room left for the Centre after the recent duty rejig, and the state governments also need to come forward and share the burden. This is especially in the backdrop of global crude oil prices continuing the northward climb. The Centre's earlier plea to states asking them to lower the floor rates has failed to cut ice with them. The state governments are of the view that there was no need to disturb the floor rate structure now as the rise in oil prices was a temporary phenomenon. On the contrary, the empowered committee of state finance ministers demanded compensation in lieu of the reduction in sales tax to cushion consumers from the hike in petro products prices effected by the Centre. deepshikha.sikarwar@timesgroup.com