Petroleum products, tobacco and alcohol, which contribute significantly to revenue of the central and state governments, will be taxed at a higher rate by both the Centre and states, compared to the standard Goods and Services Tax rates to be implemented from 2010 in the country.

Currently, the above-mentioned products are taxed at higher rates than most other goods. So, the move is aimed at protecting the revenues of both the Centre and states.

"The joint working group on GST has recommended that petrol and diesel should be taxed at GST-plus," a source familiar with the development said.

A decision in this regard will be taken by the empowered committee of state finance ministers in its meeting on December 20. Thereafter, the GST report that suggested dual parallel GST at the central and state levels, will be sent to the finance ministry for consideration by this month-end.

The working group said petrol and diesel should be brought under GST with input tax credit. However, excise duties without input tax credit should be levied over and above the GST rate by both the central and state governments.

The other option suggested by the panel was to keep petrol and diesel outside the GST structure.

"The recommendations on petrol and diesel are logical. Even a duty over and above the GST rate is okay and there are global examples. But, the tax rates should not be punitive," a leading tax consultant said.

Petrol, diesel, aviation turbine fuel and other motor spirits attract a floor rate of 20 per cent sales tax at the state level. The Centre's excise duty on petrol is 6 per cent plus Rs 5 per litre, while it is 6 per cent plus Rs 1.25 per litre on diesel.

The Centre also levies cess and special additional excise duty on crude, petrol and diesel. Other petroleum products attract central excise between 8 per cent and 16 per cent.

The central government, which collects 30-40 per cent of its total excise revenue from the petroleum sector, is likely to get some preferential treatment in taxing crude, motor spirit and diesel to keep its revenues intact.

The panel also recommended to tax demerit goods, like alcohol beverages and tobacco, at GST-plus at both the state and central levels, in the same pattern as suggested for petrol and diesel. Liquor is taxed at 20 per cent plus by states, but there is no central excise. Tobacco is taxed at 12.5 per cent at the state level, while the Centre levies excise duty on tobacco at various rates.

However, the licence fees paid by liquor manufacturers and distributors to states should stay outside GST as it generates a significant amount of revenue for them, it said.

The panel also recommended that electricity be brought under GST and input tax credit be given wherever it is used as an input. Currently, states levy electricity duty at varied rates like 25 paise and 40 paise per unit.

"This is a good proposal to include electricity under GST as many companies use it as an input," said the tax consultant.

The working group on GST consisted of central and state government officials appointed by the empowered committee in consultation with the finance ministry to prepare a roadmap for implementation of a uniform consumption tax in the country from April 1,2010.