Centre, states should talk about petroleum taxes: Nirmala Sitharaman
- Both the Centre and states have shied away from lowering taxes on auto fuel as a reduction by either of them may open up a chance for the other to step up taxes
New Delhi: Finance minister Nirmala Sitharaman on Friday said the issue of tax burden on petroleum products was something that both the Centre and the states have to discuss as both draw revenue from these items.
In an interaction with members of the Indian Women's Press Corps (IWPC), Sitharaman said consumer sentiment about the tax burden on auto fuel was understandable.
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The minister’s suggestion that a Centre-state dialogue on this was needed assumes significance as both have shied away from lowering taxes on auto fuel as a reduction by either of them may open up a chance for the other to step up taxes. This poses a dilemma to policy makers.
“While the consumer feels the prices should come down, it is understood and appreciated. But pricing--that is where I use the word dharam sankat. It is a question I would like the states and the Centre to talk about because it is not just the Centre that has duties on petroleum prices…Both the Centre and states derive revenue from it. When the Centre draws revenue on any score, 41% of it goes to states. This is an issue which is layered. It has to be a matter ideally for both the centre and states to talk about," the minister explained in response to a question on high fuel taxes.
In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.
Unlike liquor, there is no Constitutional bar on bringing five key items—crude oil, petrol, diesel, natural gas and jet fuel—under GST. It is a decision the Council can take. However, the strain in Centre-state relations in the past over the union government compensating states’ GST revenue losses makes it a hard choice for states to further dilute their unilateral taxation powers on petroleum.
If key fossil fuels are brought under GST, it would bring cheer to a whole lot of industries which currently bear the brunt of being in two streams of indirect taxation without any flow of tax-credit between them.
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Companies like Oil and Natural Gas Corp pay GST on the equipment and services they purchase for oil exploration and production, but the GST credit cannot be used to set off the tax liability when they sell crude oil. Refiners like Indian Oil Corp. which pay GST on refinery equipment and other services too face similar problems as their refinery output attracts excise duty and Value Added Tax, not GST. Also, several industries including petrochemicals, synthetic textiles, polymers and glass use crude oil as raw material and get caught in two streams of taxation. So is the case with transportation and aviation sectors.
The minister also said union budget for FY22 was made with the goal of making the country a production hub not just for the country but for the rest of the world too. Creating opportunities for the youth and providing policy stability were also considerations, the minister said.
Sitharaman also explained why the government decided to go on appeal against the international arbitration awards companies like Cairn Energy Plc and Vodafone Plc have secured on tax matters.
The idea, the minister said, was to defend the country’s sovereign right of taxation. The minister said there was no lack of clarity on the current government’s policy of not resorting to any retrospective change to law.
“I can’t see any lack of clarity on that score. That doesn’t mean that where I find arbitration award questioning India’s authority to tax, should I be letting it go? India’s sovereign authority to tax cannot be questioned by anybody. Even if it is an award of an arbitration, if the question (is) of India’s sovereign right to tax, I will appeal, it is my duty to appeal. The government of the day will have to question that (arbitration award)," Sitharaman explained.
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