As the Centre and states gear up for a major overhaul of India’s Goods and Services Tax (GST) framework, Union Road Transport Minister Nitin Gadkari has called for a reduction in the GST rate on crude ethanol—from the current 18% to 5%—in a bid to support the production and adoption of flex-fuel vehicles, according to a report by ToI.
At present, ethanol that is used under the Ethanol Blended Petrol (EBP) Programme attracts a concessional GST rate of 5%. However, crude ethanol continues to be taxed at the higher rate of 18%. A source told TNN that Gadkari has urged for parity between the two, cautioning that taxing crude ethanol at such a high rate could discourage people from opting for vehicles that run entirely on ethanol.
“Why will people go for these vehicles if the price of crude ethanol is equal to or more than that of petrol?” the source quoted Gadkari as saying.
Although over 400 fuel outlets in the country currently offer 100% ethanol, consumer interest remains weak. Gadkari believes this trend can be reversed if a more favourable tax policy is introduced for crude ethanol.
Gadkari’s appeal comes as the Union government is in the process of re-evaluating the GST structure. Finance Minister Nirmala Sitharaman and a team of officials are reviewing various rationalisation proposals ahead of detailed consultations with states. The larger exercise aims to streamline the GST regime, enhance revenue efficiency, and address classification issues that have emerged since the tax was introduced in 2017.
Earlier attempts to bring about change through two separate Groups of Ministers (GoMs) did not yield any actionable consensus. A third GoM is now studying the issue of cesses, particularly the compensation cess, which is set to lapse in March next year.
India’s GST structure currently features four primary tax slabs: 5%, 12%, 18%, and 28%. While the majority of items fall under the 5% bracket, most of the revenue is generated from the 18% slab. Industry bodies have long been pressing for a simplification of this framework, especially a merger of the 12% and 18% slabs into a single rate of 15–16%. However, such a move may lead to revenue losses and face political opposition from states.
Gadkari’s proposal to lower GST on crude ethanol aligns with the country’s wider energy and transport objectives, including reducing reliance on imported oil and encouraging the use of alternative fuels. It is still uncertain whether this suggestion will be included in the final set of GST reforms currently under consideration.
Source #ET
