After the government’s decision to increase the cap on subsidised cooking gas (LPG) cylinders to nine per year from the earlier six, consumers may get further relief, with diesel prices expected to come down by Rs. 1-2 per litre.

While the UPA government is yet to reveal the exact details over trimming down the recent steep hike of Rs. 5 per litre in diesel prices, in line with the demand from UPA’s key ally Trinamool Congress that has pulled out of the coalition, a government source said “some relief in diesel prices may come soon for consumers.”

“While there will be no rollback of diesel prices but a relief may come by way of cutting down the central or state levies on diesel,” he said.

“There is a strong possibility that Congress-ruled states may be asked to cut value-added taxes (VAT) on diesel to give this relief.”

At present, states charge anywhere between Rs. 5 to Rs. 11 a litre as state taxes and VAT on every litre of diesel sold. In Delhi, on every litre of diesel sold (at Rs. 46.95 a litre), state taxes are close to Rs. 5.50 per litre while central taxes and duties stand at Rs. 3.56 a litre.

While the share of central excise and customs on diesel is fixed at around Rs. 3.56 per litre, state taxes and VAT vary between Rs. 5 to Rs. 11 per litre, depending on the level of taxes levied in every state.

The oil sector’s contribution to the central and state exchequers stood stood at Rs. 232,767 crore during 2011-12 against Rs. 225,494 crore in 2010-11.

However, while central revenues dipped to Rs. 119,849 crore during 2011-12 from Rs. 136,497 crore in the previous fiscal year, state revenues continued to rise.

Against a contribution of Rs. 88,997 crore in 2010-11, state revenues rose to Rs. 119,849 crore in 2011-12.

“This (reduction of VAT) is also part of the reforms being pushed by the UPA government,” he said. “Everyone including the Centre, states and oil firms have to pitch in when it comes to taking a hit on their own finances to give comfort to consumers.”