Nirmala Sitharaman: Centre, states need to work together to lower fuel prices

Amid an outcry over record high petrol and diesel prices, Union Finance Minister Nirmala Sitharaman on Saturday said the Centre and state governments will have to together work out a mechanism to bring retail rates to reasonable levels.

As much as 60 per cent of the retail price of petrol, which shot above Rs 100-mark in some places in Rajasthan and Madhya Pradesh and is at an all-time high elsewhere in the country, is made up of central and state taxes.

Taxes make up for about 56 per cent of the record high diesel rates.

Sitharaman, who had increased central excise duty on petrol and diesel by a record margin last year to mop up gains arising from international oil prices plunging to two- decade low, remained non-committal on cutting taxes to give relief to consumers.

She went on to explain the tax structure and how production cuts by oil cartel OPEC and its allies had led to a rally in the international oil prices, leading to a hike in retail rates in India.

She, however, said the answer may lie in bringing petrol and diesel under the Goods and Services Tax (GST) regime, which will end the cascading impact of taxes and bring uniformity.

Currently, the central government levies a fixed rate of excise duty while states levy different rates of VAT. Under GST, the two would merge and bring uniformity, solving the problem of fuel rates being higher in states with higher VAT.

Stating that the states levy ad valorem rates of sales tax or VAT which help them get more revenue whenever prices go up, she said it won’t serve any purpose if the Centre were to take the moral high ground and bring down excise duty to zero.

Fuel retailers, who were given pricing freedom over the years, daily decide on retail rates depending on benchmark international prices and foreign exchange rates. India is 85 per cent dependent on imports to meet its oil needs and so retail rates are linked to international prices.

Sitharaman said as a finance minister she cannot be one minister in the Union government to say how much the price can be decreased and whether that would not guarantee the States to earn more money.

Asked whether bringing the fuel prices under Goods and Service Tax would lead to an answer, she said, “it can be.”

The finance minister said if the GST Council agrees on one rate then all over the country there can be one fuel price rather than Chennai being more expensive than New Delhi or New Delhi more expensive than Mumbai.

Petrol and diesel prices have been increased for 12 straight days, taking them to an all time high of Rs 97 per litre for petrol in Mumbai and over Rs 88 mark for diesel.

Retail pump prices differ from state-to-state depending on the local taxes (VAT) and freight.