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.

In Karnataka, state taxes on fuels are ad valorem and move in proportion with any rise in petroleum prices. In other words, a hike by the Centre automatically enhances the cash flow to the state exchequer.

In addition to the various Central levies, the state government imposes two types of taxes on petroleum products - sales tax and entry tax.

The state has kept autofuels out of the Value Added Tax (VAT) regime and charges 28 per cent sales tax on petrol and 20 per cent sales tax on diesel. In addition, there is a 5 per cent entry tax that is levied on every litre of petrol or diesel coming into the state. With the sales tax being imposed on the basic price, the state gets 28 paise per rupee hike on petrol and 20 paise per rupee hike on diesel.

Sales tax of 4 per cent is levied on LPG and Kerosene used for domestic purposes, while the slab is 12.5 per cent on LPG and Kerosene used for non-domestic purposes.

No doubt then that the tax on petroleum products is one of the highest revenue generators for the state exchequer. The sales tax component is one of the highest among states in the country. (See chart).

High revenue

In 2006-07, sales tax on petrol and diesel generated Rs 3,003.36 crore for the commercial taxes department.

Entry tax clocked another Rs 609.01 crore. This year, the sales tax collection till November end has been Rs 2,049.62 crore and entry tax collection stand at Rs 405.05 crore .The average daily consumption of petrol and diesel in the state is 31 lakh litres and 81 lakh litres respectively.

Last year, during the pre-budget deliberations the government had given an assurance that it is actively considering lowering the sales tax component imposed on petrol and diesel to lessen the burden on the common man. However, it was never implemented.