A peak tax rate of 28 per cent plus states
levying some amount of local sales tax or VAT on petrol and diesel is likely to
be the tax structure when the two auto fuels are covered under the GST regime,
a top government official said.
The peak GST rate plus VAT will be
equal to the present tax incidence, which is made up of excise duty, levied by
the central government, and VAT charged by the states.
But before the two fuels are put under
GST, the Centre has to decide if it is willing to let go the Rs 20,000 crore
input tax credit it currently pockets by keeping petrol, diesel, natural gas,
jet fuel and crude oil out of the Goods and Services Tax (GST) regime that came
into force from July 1, 2017, the official said.
"There is no pure GST on petrol and
diesel anywhere in the world and so in India too it will have to be a
combination of GST and VAT," said the official, who is closely involved
with the GST implementation.
The timing of including petro products
in GST will be a political call which the centre and states will have to take
collectively, he said.
The Centre currently levies a total of Rs 19.48
per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of
this, states levy Value Added Tax (VAT) - the lowest being in Andaman and
Nicobar Islands where a 6 per cent sales tax is charged on both the fuel.
Mumbai has the highest VAT of 39.12 per cent on
petrol while Telangana levies highest VAT of 26 per cent on diesel. Delhi
charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel.
The total tax incidence on petrol comes to 45-50
per cent and on diesel, it is 35-40 per cent.
The official said that under GST the total
incidence of taxation on a particular good or a service has been kept at the
same level as the sum total of central and state levies existing pre-July 1,
2017. This was done by fitting them into one of the four GST tax slabs of 5,
12, 18 and 28 per cent.
For petrol and diesel, the total incidence of
present taxation is already beyond the peak rate and if the tax rate was to be
kept at just 28 per cent it would result in a big loss of revenue to both
centre and states, he said.
"The Centre doesn't have the money to
compensate states for loss of revenue and so the solution is to have a peak
rate of tax plus allowing states to levy some amount of VAT keeping in mind
that the overall incidence should not exceed the present levels," he
GST has been spoken of as a panacea for high fuel prices but
the structure in works would ensure rates remain almost at same levels unless
centre and states decide to levy pure GST of 28 per cent and not go for an
additional VAT or a cess.