Union Road Transport Minister Nitin Gadkari has called for a reduction in the GST on crude ethanol from the current 18% to 5%, in a bid to support the production and adoption of flex-fuel vehicles, as the Centre and states prepare for major amendments to India’s Goods and Services Tax (GST) framework.
A concessional GST rate of 5% is currently levied on ethanol used under the Ethanol Blended Petrol (EBP) Programme. However, a higher 18% rate continues to be levied on crude ethanol. Gadkari, while cautioning that taxing crude ethanol at such a high rate could prevent people from opting for vehicles that run completely on ethanol, suggested parity between the two.
“Why will people go for these vehicles if the price of crude ethanol is equal to or more than that of petrol?” as per the source that states Gadkari saying.
In the country, even after more than 400 fuel outlets offer 100% ethanol, consumer interest is still down. If favourable tax policies are made for crude ethanol, then the same trend could be changed, Gadkari believes.
With the Union government in the process of re-evaluating the GST framework, the appeal of the Gadkari has arrived. Ahead of detailed consultations with states, various rationalisation proposals are being reviewed by the Finance Minister Nirmala Sitharaman and a team of officials.
The main motive is to facilitate the GST regime, enhance revenue efficiency, and address classification problems that have occurred since the tax was introduced in 2017.
Previous efforts to implement change through two different groups of ministers didn’t lead to any clear agreements. Now, a third group is looking into the case of cesses, especially the compensation tax, which is about to expire in March of next year.
The four primary tax slabs: 5%, 12%, 18%, and 28%, are currently in the GST structure of India. However, the majority of the items come within the 5% bracket, from the 18% slab, where the majority of the revenue is generated.
Industry bodies have been pushing for an easier framework for a much longer time, particularly the merger of the 12% and 18% slabs into a single rate of 15%-16%. The same move might lead to the loss of revenue and suffer the political opposition from the states.
Read Also: Nitin Gadkari Requests FM to Set a 12% GST Rate on Flex Fuel Vehicles
Reducing the GST on crude ethanol, which is Gadkari’s proposal, is for the nation’s broader energy and transport purposes, which include the reliance on imported oil and motivating the use of other fuels. It is yet not clear that if the same suggestions shall be included in the final set of the GST reforms presently under consideration.
