Petrol and diesel could be taxed under GST (Goods and Services Tax) rather than VAT (Value Added Tax) if state governments agree to the proposal and fix a suitable rate, Finance Minister Nirmala Sitharaman told NDTV Profit Friday. "If they fix the rate and all come together… and decide that GST will include petroleum products, then we can implement it immediately," Ms Sitharaman said.
Such a move could see a potential drop in prices as it will mean these are taxed just once rather than having multiple levies – i.e., not just on cost of production but also the centre's excise.
At present, petrol and diesel prices vary from state to state because each has a different tax.
The centre's excise duty is levied on top of this, meaning the end consumer pays tax twice over – once to the state government and then again to the centre.
Moving both to the GST list will mean there is one uniform tax applicable across the country.
This could, in theory, bring down the prices.
According to Prime Minister Narendra Modi, petroleum products are taxed at close to 60 per cent, with the state gaining Rs 2.5 lakh crore and the centre making Rs 2 lakh crore.
By bringing petrol and diesel under GST, there will be, at most, a 28 per cent tax slab over these products, as that is the highest slab in the current tax regime.
As far back as November 2022 the centre had said it is ready for this move but left it to the states to decide. Union Minister Hardeep Puri, then the Petroleum Minister, said, "If the states make the move, we are ready. We have been ready all along. That is my understanding."
However, not all states are onboard with this idea as this means they will lose out on sizeable revenue. In fact, in December 2021 the GST Council did not recommend bringing petroleum products under its umbrella.