NEW DELHI: The government has opted to ignore petroleum minister Dharmendra Pradhan’s repeated plea to bring petrol and diesel within the ambit of goods and services tax (GST) and decided to put the plan on the backburner, arguing that the time is not ripe for the change.
While most of the states were always reluctant, sources told TOI that even the finance ministry is not keen on the move as it will not lower the burden on consumers but will only complicate the GST regime. Pradhan had pushed the move to counter the impact of higher retail prices.
But with neither the Centre nor the states willing to lose any revenue from one of the most-taxed commodities, the government believes that the move will not result in any price reduction.
On the contrary, both the Centre and the states will have to levy taxes over and above the 28% GST cap to keep the overall levy at current levels. This will result in multiple levies, which is akin to the current system where both levy VAT and other taxes.
“This defeats the whole purpose. So, we have decided not to pursue the plan at the moment,” said a source, who did not wish to be identified.
Sources said compensation cess above the 28% GST levy was also not an option, given that the Centre had a surplus of Rs 20,000 crore in the fund and with tax collections expected to go up, the kitty is only going to swell. The government levies a compensation cess on several luxury and sin goods such as mid-segment and large cars, tobacco and soft drinks that are to be used to make up for losses incurred by the states for five years.
The inclusion of auto fuels would have helped companies get input tax credit on the taxes paid on petrol and diesel. But most states, including several ruled by BJP, had rejected the petroleum ministry’s demand as they wanted to retain flexibility.
With global crude oil prices on the rise, the Centre and the states are under fresh pressure to lower taxes to protect the interests of consumers, given that pump prices of diesel are at a record high, while petrol is selling at the highest level since the Modi government came to power four years ago.