Home News States agree to cut VAT on petrol products in relief for manufacturers

States agree to cut VAT on petrol products in relief for manufacturers

Manufacturers have been hit by a higher tax outgo that comes without any input credit

VAT on petrol products

Finance Minister Arun Jaitley’s plea to states to lower VAT on hydrocarbons appear to have had an impact and the country’s manufacturing sector may have reason to cheer over cheaper input costs, according to reports. In fact, India may be moving towards a uniform petroleum tax.

According to the Economic Times, states have given their nod to capping value-added tax (VAT) on natural gas at five per cent. Further, according to the report, they have agreed to lower VAT on other petroleum products, including petrol and diesel, which are used by the manufacturers as input. The Goods and Services Tax (GST) Council, the report said, would take up the scheme after it is formulated by the states. The development could lead to uniform petroleum product prices across the country.

Currently, crude oil, petrol, diesel, natural gas, and aviation turbine fuel have been kept out of the GST’s ambit.

Financial daily Livemint had reported in August that Jaitley had urged states to lower VAT on hydrocarbons that had been kept out of the ambit of the Goods and Services Tax (GST). According to the report, this would come as a relief to the country’s manufacturing sector, which is facing a higher tax outgo since five hydrocarbons have been kept out of the GST’s ambit.

Double whammy for manufacturers

Pratik Jain, leader (indirect tax) at PwC, described the hardship faced by manufacturers to ET. “With the introduction of GST, facility of issuing Form C (and purchase at 2 per cent CST) for the purchase of fuel used in manufacturing was done away with… Also in a few states VAT paid on fuel was used as input credit (either in whole or part), which is also not available now, as the manufacturer has to pay GST on output. This has resulted in incremental costs for many businesses,” Jain told the financial daily.

Before GST came in, manufacturers, according to the report, could avail off Form C – a facility that allowed them to procure petroleum products from other states by paying two per cent central sales tax in place of the VAT levied by the state. After the GST came into force, they have to procure petroleum products after shelling out the state’s applicable VAT, rates for which range from 15 per cent to 30 per cent. The manufacturers’ pain does not end there. Since petroleum products are not covered under the GST, they cannot claim input tax credit.

GST on petrol products?

As reported earlier, the petroleum ministry’s push for including crude oil, natural gas, petrol, diesel, and aviation turbine fuel under the GST regime could bring benefits to the industry as well as customers at a time of rising retail prices. However, much of the benefits would depend on the GST rates applicable on fuel.

The GST Council is yet to decide on bringing fuel under the GST’s ambit.

In fact, on Wednesday, Petroleum Minister Dharmendra Pradhan said that a shift to the GST regime was the only way to have a transparent tax structure on fuel items.

However, states may not take too kindly to Pradhan’s proposal. In an earlier report, while speaking to Business Standard, former Central Board of Excise and Customs chairman Sumit Majumder had explained that states were not willing to bring petroleum under the GST because 50-55 per cent of their VAT revenue came from these products.

Source: Business-Standard