NEW DELHI: Finance Minister Arun Jaitley has shot off a letter to all chief ministers asking them to cut sales tax or value-added tax on fuels like natural gas that have been kept out of the goods and services tax (GST) but are used as inputs for goods coming under the new indirect tax regime. He also urged states to explore reducing VAT on petroleum products used for manufacturing of certain items which are in the GST. This, according to him, will ensure minimum disruption in the costing of goods.
Currently, crude oil, petrol, diesel, natural gas and jet fuel are out of the ambit of GST, which is effective from July this year. It has replaced or subsumed several central and state levies such as central excise, service tax and VAT.
In his letter, Jaitley highlighted the problems and concerns raised by the manufacturers on increased input costs of petroleum products due to GST. The content of the letter was released in a statement on Friday.
The input costs go up for power producers using natural gas, firms manufacturing fertiliser, petrochemicals and glass. Crude oil is used to make petrol and diesel as also kerosene, LPG and other industrial fuels.
The FM noted that while some industries can claim input tax credit, others are unable to get the tax benefit because crude oil, natural gas and three petroleum products are out of the GST. “This raises the cost for the industries using either of the five products as inputs,” he said.
The statement also points that while a few states had lowered VAT to five per cent on compressed natural gas used for manufacturing of goods and some have cut VAT on diesel, others have not taken any action and the non-uniformity makes the products costly.
For example, VAT on diesel varies from 17.4 per cent in Delhi to 31.06 per cent in Andhra Pradesh. On natural gas, it is anywhere between zero and 15 per cent. LPG is open to be taxed at five per cent, while naphtha and fuel oil can be taxed at 18 per cent by states.