The Delhi government has announced a reduction in state sales tax on diesel from 20 per cent to 12.5 per cent, effective 20 July, thereby making the auto fuel cheaper at the outlets.
Union minister for petroleum commented the Delhi government's action, saying, it would provide relief to the consumers from the additional sales resulting from the recent price hike.
State governments levy sales tax on petrol and diesel on an ad valorem basis.
In fact, the reduction of sales tax in Delhi would bring down diesel prices there to a level lower than the prices prevailing before the increase effected on 25 June 2010.
Price of diesel in Delhi would go down Rs2.50 to Rs37.60 per litre from 20 July.
The Delhi government's action, however, was prompted by a sharp decline in revenue of petrol pumps because of declining sales of diesel.
Delhi chief minister Sheila Dikshit said the recent price hike had affected sales at petrol pumps and that the VAT reduction would help them to recover lost sales.