FM Arun Jaitley asks states to reduce VAT on petroleum products post GST

Key Highlights

• Tax incidence on petroleum products increased post GST.
• Jaitley wrote to state Chief Ministers to reduce burden of VAT on petroleum products.
• Pre GST certain states had lower rate of 5% VAT on CNG used for manufacturing of goods. 

The Union Minister of Finance, Defence and Corporate Affairs, Arun Jaitley wrote to State Chief Ministers to reduce the burden of Value Added Tax (VAT) on petroleum products used in manufacturing. His plea was on the basis of rising input costs in the making of goods after the rollout of Goods and Services Tax (GST) from July 1, Press Information Bureau said on Friday.  

“The letter by Finance Minister highlights a concern being raised by the manufacturing sector in the country regarding the rise in input costs of petroleum products happening on account of transition to Goods and Services Tax regime,” the report said.

The GST Council had earlier decided to reduce the rates of over 66 items before the implementation of GST. In August, the Council received over 150 requests to reduce rates.

The burden of VAT on petroleum went unseen before the rollout of GST, the report said.

“As was decided by the Empowered Committee (EC) of states' finance ministers, we have brought petroleum in the constitutional amendment for the GST...it is zero rated and tax will only be applied when the GST Council decides," Jaitley said at the Aaj Tak conclave on the Goods and Services Tax in June this year. 

“In the pre-GST regime, because the petroleum products as well as the final goods produced both attracted VAT, input tax credit of petroleum products being used as inputs by manufacturers was allowed to varying extent by different States.   However, in the post-GST scenario, the manufactured goods attract GST while the inputs of petroleum products used in the manufacturing attract VAT and, therefore, it would lead to cascading of taxes.  In view of this, in the pre GST regime certain States had lower rate of 5% VAT on Compressed Natural Gas used for manufacturing of goods.  Some States also had lower rate of VAT on diesel being used for manufacturing sector,” the report said.  

“Thus Arun Jaitley has requested other States also to explore the possibility of having a lower rate of VAT on petroleum products used for manufacturing of those items on which there is GST, so that there is minimum disruption in the costing of goods,” it added.