Amid a sharp increase in prices of petrol and diesel in the last few weeks, experts said that there is an urgent need to bring fuel under the ambit of goods and services tax (GST). Fuel has been kept outside the purview of GST due to stringent resistance from state governments.

A State Bank of India (SBI) report noted that sales tax and value added tax (VAT) on petroleum products comprise a major source of tax revenue for the states. “Thus, there is lack of political will to bring crude under the ambit of GST. Interestingly, no country in the world has a completely transparent mechanism in pricing petroleum products,” the report noted.

Every state in the country has its own tax structure with a combination of ad valorem tax, cess, extra VAT, surcharge that are fixed based on their needs.

SBI has prescribed bringing fuel prices under GST ambit and fixing the rate at 28 per cent—with an equal of 14 per cent each directed towards the Centre and the states.

It said that transportation charges be fixed at Rs 7.25 for diesel and Rs 3.82 for petrol with dealer commission of Rs 2.53 for diesel and Rs 3.67 for petrol.

Besides, a cess of Rs 30 may be fixed for petrol and Rs 20 for diesel.

With this formula, the base price for petrol and diesel comes out to be Rs 75 and Rs 68 per litre respectively at the pan India level considering global crude price of $60 per barrel and a rupee exchange rate of Rs 73.

At this base price, with multiple simulations centre and states have a revenue deviation from budget estimates by only Rs 1 lakh crore — 0.4 per cent of GDP after adjusting for the increase in consumption with the intended price cut, it said.  The report said that this could reduce the burden of fuel price hike on the common man.