The quantum of reduction will be decided at the cabinet meeting to be held on Thursday, home minister V S Acharya told reporters here on Tuesday while officials in the finance department hinted at a one rupee cut on every litre of petrol and diesel.

"We will also decide on where the reduction should be effected —- petrol, diesel or LPG," Acharya said. The announcement comes in the backdrop of the meeting of the empowered committee of finance ministers held in New Delhi on Monday where the states had agreed to reduce sales tax on petro-products.

Karnataka too resolved to join the bandwagon, but with a rider. "The Centre should bear 50 per cent of the loss incurred by the state government because of the tax-cut," Acharya said.

To substantiate the demand, Acharya pointed to several welfare schemes that have been taken up in the state in anticipation of taxes from the sale of fuel. "The state government expected an additional Rs 380 crore because of the recent hike.

Now, if the taxes have to be cut, the state's exchequer would incur a huge loss and that would affect development programmes badly. So it is pertinent that the Centre supports the state government," Acharya said.

In fact, the fuel hike has caused losses to the tune of Rs 170 crore to the state-owned public transport corporations and transport bills of all the government departments have increased by Rs 40 crore, he said and warned that a reduction would offset the arithmetic and make resource-mobilisation a difficult task for the state government.

Karnataka, in fact, has not reduced taxes on petro products in the last one decade. The cabinet may not go in for a major reduction as taxes on petro-products are a major sources of revenue for the state government, nearly Rs 3,400 crore is generated from sales of petrol and diesel.

Per day consumption of petrol and diesel in the state is Rs 31 lakh litres and Rs 81 lakh litres repectively. The state government, which has kept the petro products out of the VAT regime and is instead following the ad valorem system, charges 28 per cent sales tax on petrol and 20 per cent on diesel.

This apart, there is a five per cent entry tax that is levied on every litre of petrol and diesel that enters the state.