New Delhi: States like Bihar and Kerala believe that the time is not right for the inclusion of petroleum products under the goods and services tax (GST).

This comes at a time when central government ministers have pitched for inclusion of petroleum products, especially diesel and petrol, under GST to minimise the impact of the increase in global prices of crude oil.

Petroleum is not constitutionally excluded from GST, but has been kept outside GST net till a consensus evolves among states. However, states are reluctant to bring petroleum under GST and cede their source of revenue.

States want the tax revenues under GST to settle before further changes to the GST architecture are made. However, industry is batting for early inclusion so that they are able to claim input tax credit.

A final decision will be made by the GST Council.

“It is not the right time for petroleum products to come under GST. It is not that petrol and diesel will become cheap if they come under GST. States will continue to impose VAT (value-added tax) over and above GST like it is done internationally," said Sushil Modi, Bihar’s deputy chief minister.

Kerala finance minister Thomas Isaac also did not favour inclusion of petroleum under GST. “I hope it is not done and they (the central government) let the tax settle down. If you want to bring down petrol prices, you should just reduce the excise duty. Prices are high because the Bharatiya Janata Party (BJP) government increased excise duty by 200-300%. Bringing it under GST is just postponing the decision till election eve," Isaac said.

Demands for inclusion of petroleum gained pace after the cost of the Indian basket of crude, which averaged $47.56 and $56.43 per barrel in fiscal year (FY) 2017 and FY18 respectively, shot up to an average of $75.31 in May 2018, according to data from the Petroleum Planning and Analysis Cell. The price was $74.89 a barrel on 27 June, rising again after tapering in the last few weeks.

The government is planning to first test the waters with a proposal to include natural gas and aviation turbine fuel under GST before proposing the inclusion of petroleum and diesel.

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