States want the Centre to compensate at least half of the Rs 8,000 crore they lost when they reduced sales tax on diesel, petrol and LPG after their prices were increased on June 5, and have opposed further cuts in these taxes to accommodate a price hike in the future.

The Empowered Committee of State Finance Ministers on June 16 decided that as revenue sources for the states were limited, the Central Government "should be requested to bear at least 50 per cent of the losses". The losses are estimated at Rs 8,000 crore for the remaining 10 months of the current fiscal year as 15 states reduced sales tax on diesel, 10 on petrol and five on LPG.

The cuts - steeper than revenue neutral rates - were unilaterally announced by the states on requests by Prime Minister Manmohan Singh and their political organisations.

The panel also wants that henceforth states should not be requested to further reduce taxes on petroleum products. "Besides compensation, it is also necessary that Government and consumers appreciate that states cannot reduce tax rates on petroleum products to accommodate the price rise in view of their developmental and administrative responsibilities and limited resources," says the minutes of the meeting.

And if such an appeal is made, they would henceforth collectively decide on the tax cuts and rather than indulging in unilateral steps as they did in June.

"In future, if such a situation arises, the matter should be first discuss ed in an urgent meeting of the Empowered Committee to be called at short notice rather than each state taking a decision on their own," it said.

The Committee has also asked the states not to alter the floor rates of sales tax on petrol and diesel, and those that had, have been asked to correct them. Four committees for northern, eastern, western and southern states have been set up which would study these deviations and report them to the Empowered Committee.