Petroleum products must be under GST, says government

Petroleum products should come under the ambit of the proposed goods and services tax (GST), but a final decision would be taken only after reaching consensus with state governments, the government told the Lok Sabha on Monday.

State governments earn a major chunk of their revenue from taxes on petroleum products such as petrol and diesel which are also easy to collect as public sector oil companies pass on these levies direct to the states. States are, therefore, staunchly opposed to letting go of these goods. Petroleum minister Dharmendra Pradhan said during Question Hour that in principle, petroleum products should come under the ambit of GST, but a final decision would be taken only when states come on board on the issue.

Pradhan explained that altogether 52 per cent tax is levied on petroleum products by both Central and state governments and such revenues are used for welfare and infrastructure projects. Around 32 per cent tax is imposed by the Central government on petroleum products while around 20 per cent is levied by state governments, he said.

Pradhan added that state governments are free to fix the amount of tax they want to levy on petroleum products as every state has its own aspirations and development projects which they carry out through the revenue generated from the sale of petroleum products. Meanwhile, chief economic adviser Arvind Subramanian defended a three-rate structure for GST, including the 'sin' tax of 40 per cent on products like sugary drinks, cigarettes and luxury cars saying the recommendation is based on the current tax structure. He had recommended a range for revenue-neutral rate at 15-15.5 per cent and standard rate at 17-18 per cent as it was not possible to say with a degree of confidence that one particular rate is the right rate, he said.