In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.
In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.

Centre, states need to discuss fuel taxes, says Sitharaman

  • In an interaction with members of the Indian Women’s Press Corps (IWPC), Sitharaman said that consumer sentiment about the tax burden on auto fuel was understandable.
By Gireesh Chandra Prasad, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 02:15 AM IST

Finance minister Nirmala Sitharaman said on Friday that the issue of tax burden on petroleum products was something that the Centre and the states have to discuss as both draw revenue from these items.

In an interaction with members of the Indian Women’s Press Corps (IWPC), Sitharaman said that consumer sentiment about the tax burden on auto fuel was understandable.

The minister’s suggestion for a dialogue assumes significance as both the Centre and state governments shy away from lowering taxes on auto fuel, thinking a reduction by either of them would open up a chance for the other to step up taxes. This poses a dilemma for policymakers.


“While the consumer feels the prices should come down, it is understood and appreciated. But pricing—that is where I use the word dharam sankat (predicament). It is a question I would like the states and the Centre to talk about because it is not just the Centre that has duties on petroleum prices. Both the Centre and states derive revenue from it. When the Centre draws revenue on any score, 41% of it goes to the states. This is an issue that is layered. It has to be a matter ideally for both the Centre and states to talk about,” the minister said in response to a question on high fuel taxes.

In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.

Sitharaman’s openness to discuss the issue of tax burden on fuel with states comes at a time Assam, Kerala, Tamil Nadu, West Bengal and Puducherry are set to go for assembly polls this year—something that puts pressure on state leaderships, too, to find a quick solution.

If Centre-state talks on fuel prices materialise, this would be the first formal discussion on the matter after crude oil and petroleum products were kept out of GST in 2017 as insisted by states.

Retail prices of petrol and diesel are already at historic highs as oil prices continued to recover. News agency Press Trust of India reported on Friday that global crude price rose nearly 1% to $67.44 a barrel after the Organization of the Petroleum Exporting Countries (Opec) and its allies, known as Opec+ decided against stepping up supplies in April.

Unlike earlier occasions of crude oil price spikes in global markets, there is no subsidy on petrol or diesel now, while taxes were raised last year when crude price was weak. In the 2012-14 period, the Indian basket of crude was over $100 a barrel but retail prices of petrol and diesel were subsidized, a practice that put significant strain on the Centre’s balance sheet and distorted the retail market then. Unlike liquor, there is no constitutional bar on bringing five key items—crude oil, petrol, diesel, natural gas and jet fuel—under GST.

If key fossil fuels are brought under GST, it would bring cheer to firms, which bear the brunt of being in two streams of indirect taxation without any flow of tax credit between them.

The minister also said the Union budget for FY22 was made with the goal of making the country a production hub. Besides, she explained why the Centre decided to appeal against the international arbitration awards companies such as Cairn Energy Plc and Vodafone Group Plc have secured on tax matters.

The idea, the minister said, was to defend the country’s sovereign right of taxation. There was no lack of clarity on the government’s policy of not resorting to any retrospective change to the law, she added. “I can’t see any lack of clarity on that score. That doesn’t mean that where I find arbitration award questioning India’s authority to tax, should I be letting it go? India’s sovereign authority to tax cannot be questioned by anybody. Even if it is an award of an arbitration, if the question (is) of India’s sovereign right to tax, I will appeal; it is my duty to appeal. The government of the day will have to question that (arbitration award),” Sitharaman said.

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