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 a two-decade low, remained non-committal on cutting taxes to give relief to consumers.
"This is a very vexatious issue. An issue in which no answer except reducing the price (of fuel) will convince anyone. I know I am treading on an area and whatever I may say, to bring in the reality into picture, will only sound like I am obfuscating."
"I am avoiding my answer. I am shifting the blame," she said, addressing a gathering at an event organised by the Chennai Citizens' Forum in Chennai.
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.
"What I am saying is that this is a vexatious issue and no minister can ever convince anybody because Indians being Indians and I am one of them (will not be convinced)," she said.
"It is a matter of fact that both Centre and states will have to talk."
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.
"I can do that (cut taxes) if I have a certain guarantee that my revenue foregone will not be an opportunity for somebody else to get into this space and gain that," she said.
"If all of us are talking about consumer prices (on fuel to) come down (and the) tax raised by the Centre, tax raised by the states are not holier than one another."
The taxes by the Centre and states are equal, she said.
Fuel retailers, who were given pricing freedom over the years, daily decide on retail rates depending on benchmark international prices and foreign exchange rates.
"Technically, the oil prices have been freed and the government has no control over it," she said, hoping that international oil prices will come down.
India is 85 per cent dependent on imports to meet its oil needs and so retail rates are linked to international prices.
"So the long and short of it is the states and the Centre have to sit together and see whether there is a way in which the retail price of fuel is at a reasonable level," she said.
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.
"Because every government needs more money, needs revenue and at the same time I can see a relief that not one additional paisa is being demanded from the taxpayers (from the budget)," she said.
Asked whether bringing the fuel prices under Goods and Service Tax would lead to an answer, she said, "It can be."
"But to get it (fuel prices) under GST needs to be a thorough discussion in the GST Council (comprising Centre and the states)," she said.
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.
"That anomaly can be addressed if it is under GST. And that can be just one tax which can be shared by both the Centre and state," she said.
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 for diesel.
Retail pump prices differ from state-to-state depending on the local taxes (VAT) and freight.