Fin Min wants BJP-ruled states to take lead in bringing petrol under GST

New Delhi: Left with few options to tackle the crude price hike impact on the economy, the finance ministry may ask the political leadership to persuade the 21 BJP-ruled states to take the initiative for bringing petroleum products under GST.

Sources said the finance ministry is of the view that the time has come to start the process of discussions on inclusion of petro products within the GST ambit and BJP-ruled states can take lead on this. Putting petrol and diesel under the goods and services tax (GST) is seen as a permanent solution to recurrent price hike and the resultant demand for relief from higher prices.

When fuel prices hit all-time high levels last month, the government had said that it was working on a permanent solution to the problem.

The matter of brining petroleum products under GST was discussed earlier in the GST Council but no consensus emerged. Sources said the government would be more specific on the issue next time. An agreement among states is required for any decision to be passed in the GST Council and if the BJP-ruled states can take it up, a majority consensus could be built over time.

The ministry is fully aware that states would demand heavy compensation for their revenue loss if petroleum products come under GST. According to one calculation, petrol can be cheaper by Rs 20 per litre under GST, but the Centre’s share of taxes could fall by over Rs 1 lakh crore a year. Similarly, the hit on states revenue could be around Rs 50,000 crore annually.

The revenue losses would be more profound for Maharashtra, Assam, Andhra Pradesh, Kerala, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Telengana which levy a high VAT of over 30 per cent on petrol. Bihar and West Bengal would have to remove additional surcharge of 30 per cent and 20 per cent, respectively, on the VAT levy.

A sharp rise in petrol price to Rs 83.67 in the pre-poll year was cited as a major reason for the Congress-led UPA government’s loss in the 2014 general elections. This situation is almost identical to price trends under the current NDA government with petrol prices crossing all-time high levels, shooting up to Rs 85.93 in Mumbai.

Maharashtra chief minister Devendra Fadnavis has already sought bringing petrol, diesel under GST to lower prices. But at the same breadth, he also stated that the GST Council would also have to look into aspects like revenue losses. Maharashtra has the highest VAT on petro products.

At the same time, BJP leader and Bihar finance minister Sushil Kumar Modi is on record saying that GST won’t bring down fuel prices. Principal economic adviser Sanjeev Sanyal has also said that GST can't reduce price fluctuation in fuels, at best it can stop the disparity in petrol prices across the states.

There have been demands to look at the possibility of including petro products in the GST. Oil minister Dharmendra Pradhan had argued for inclusion after oil prices touched USD 80 a barrel.