Petrol, diesel under GST: Centre keen to discuss possibilities with states

Representative image (Image: Reuters)

In the backdrop of record petrol and diesel retail prices, the Centre is keen to discuss the possibility of bringing petroleum products under the ambit of the nationwide Goods and Service Tax (GST), Moneycontrol has learnt.

While the finance ministry acknowledges that actually implementing such a move and getting states and Centre on the same page will be a long and tedious process, and that shaping discussions into a concrete proposal will take time, it is of the belief that including petroleum products under GST is an 'overdue reform'.

“There could be informal discussions on this on the sidelines of the next couple of GST Council meetings,” a top government official said on condition of anonymity.

Finance Minister Nirmala Sitharaman said in Lok Sabha on March 15 that there was no proposal in hand to bring crude petroleum, petrol, diesel, aviation turbine fuel, natural gas under GST. She said that the GST Council would consider inclusion of petroleum products when appropriate and keep in view relevant factors including revenue impact.

The official quoted above said that there had been internal discussions in the government on prices of petroleum products, and on bringing these items under GST.

“Whether it actually happens or not is an entirely different matter, but we do want to better understand the views of the states. Is there a way it can happen without substantial loss in revenue to the Centre and states, or what would be an ideal rate, those are the issues we will have to deal with,” the official said.

FM Sitharaman and Petroleum, Natural Gas and Steel Minister Dharmendra Pradhan have batted for the inclusion of fuel under GST and indicated that the move may bring some relief to the common man.

At present, the price of petrol and diesel includes excise duty charged by the Centre and value-added tax by the states. Though the GST was introduced on July 1, 2017, petrol and diesel were kept out of it due to this higher dependence of states.

FM Sitharaman called for a joint cooperation between the Centre and state governments to bring down fuel prices. The Centre levies an excise duty of Rs 32.98 a litre and Rs 31.83 a litre on petrol and diesel respectively.

If petroleum products are included under the GST, there will be a uniform price of fuel across the country. How cheap that prices is depends on the GST slab it is put in

Based on government data, during the first six months of 2020-21, the petroleum sector contributed Rs 2.37 lakh crore to the government exchequer – out of which Rs 1.53 lakh crore was the Centre’s share and Rs 84,057 was the share of the states.

In 2019-20, the total contribution from the petroleum sector for the states and the Centre was Rs 5.55 lakh crore. During the last fiscal, the sector contributed around 18 per cent of the revenue of the Centre and 7 percent of the revenue of the states. As per the Union Budget 2021-22, the Centre is expected to collect an estimated Rs 3.46 lakh crore this fiscal, from excise duties on petrol and diesel only.

If petroleum products are included under the GST, there will be a uniform price of fuel across the country.