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June 12, 2006 

The Tamil Nadu Government on Sunday said it would forego sales tax on the incremental component of the recent diesel price and yet maintain bus fares of State Transport Undertakings (STUs) at existing levels. Announcing this, Chief Minister M. Karunanidhi said following the decision, the incremental retail price, inclusive of the sales tax component, would come down from Rs. 2.23 a litre to Rs. 1.78. As a result, the price of diesel, that increased from Rs.33.72 a litre to Rs.35.95 on Tuesday, would come down to Rs. 35.50. But, by foregoing the sales tax of 45 paise a litre, the State Government would lose Rs.180 crore annually. The decision not to increase the fares would result in Rs.100-crore additional burden on the STUs, Mr. Karunanidhi said in a statement.

His announcement came after a similar initiative by Maharashtra and a day after Union Petroleum Minister Murli Deora met him in Chennai. A couple of days ago, the Chief Minister had said that any reduction in the sales tax could result in the bus fares going up. In the statement, Mr. Karunanidhi said the rising crude oil prices globally necessitated an increase in fuel prices. It had become routine for the ruling party to explain the circumstances leading to the increase and the Opposition to protest. The upward revision in petrol and diesel prices was being talked about by the Centre for some months now, but was put on hold. The Centre, he said, had little option but to increase the price despite some of the coalition partners opposing the move and even the President of the Indian National Congress (Congress Party) Sonia Gandhi not favouring it.

While a reduction in levies on petroleum products by the Centre and the State Government was a temporary solution, the long-term solution was to reduce consumption of petroleum products and promote research on their alternatives. In a statement, AIADMK General Secretary Jayalalithaa said the State Government could reduce the price burden by reducing the sales tax on petrol and diesel. Noting that it was not her suggestion but what Mr. Karunanidhi had given when she was Chief Minister, she said the Centre had recently said that such a move could reduce the impact of petrol and diesel price increase.