States want Centre to compensate loss if petro products brought under GST

Amid an outcry over spiraling fuel prices, state governments, including those ruled by the BJP, are opposing petroleum minister Dharmendra Pradhan’s suggestion that petroleum products should be brought under the Goods and Service Tax (GST).

States say the move would adversely impact their revenue, which has increased by almost 50% for most states in the past three years on account of high value added (VAT) tax.

Consumers pay more than 100% tax –central and state levies combined -- on petrol and diesel which actually cost Rs 29.53 and Rs 29.12 after refining.

The Centre levies excise duty of Rs 21.14 on petrol and Rs 17.33 on diesel and the states imposes value added tax that ranges between 20-47%.

Pradhan has suggested that petroleum products should be brought under GST for uniform tax mechanism across India.

“We have appealed to all the state finance ministers to bring petroleum items under GST in the interest of consumers,” Pradhan told reporters on Monday.

State government officials said the issue was discussed threadbare at meetings of the empowered committee of state finance ministers before the GST was implemented from July 1.

The state finance ministers agreed that petroleum products and liquor – which contribute up to half of the states’ revenue -- should be kept outside the GST regime. The Centre had accepted the argument that bringing them under GST would result in huge revenue loss to the states.

“Bringing these products (petroleum and liquor) under GST has neither relevance nor propriety,” said Rajasthan’s representative in the empowered committee of state finance ministers Rajpal Singh Shekhawat. “The GST council took a conscious decision to keep petroleum products outside the GST ambit”.

Chief minister Vasundhara Raje holds the finance portfolio in BJP-ruled Rajasthan.

Uttar Pradesh’s commercial tax commissioner Mukesh Meshram also ruled out the possibility of lowering taxes on fuel. “Tax on diesel and petrol in UP is already lower compared to that in most other states,” he said, admitting that lower tax would mean huge revenue loss to the state.

Maharashtra government officials have also opposed the Centre’s move.

Kerala finance minister TM Thomas Isaac told reporters there was no question of agreeing to the Centre’s move to bring petroleum product under GST with lower rates.

“We and other states made it clear at the meeting with the Central finance minister that including petroleum and liquor under GST was not acceptable,” he said.

(Illustration by Hitesh Mathur)

Officials of other opposition-ruled states such as West Bengal, Kerala, Punjab and Karnataka have also opposed Pradhan’s proposal saying it will not be acceptable until the Centre “adequately” compensates for the revenue loss.

The Central government had expressed its inability to compensate such a huge amount during meetings of the empowered committee of the finance ministers on GST.

The Congress and other opposition parties have launched protests in different states against the high fuel prices when the global crude oil price was less than $ 50. Last time, the petrol price crossed Rs 70 in Delhi or Rs 80 in Mumbai was when the international crude price touched all time high of $ 115.

(With inputs from state bureaus)