As part of a long-term plan to rein in petrol and diesel prices, the Centre is mulling to bring them under the Goods and Services Tax (GST) regime, but also retain the state-level tax or VAT on the two fuels. In case a consensus is arrived at, the tax rate on petrol and diesel may be the highest of 28% in the GST slab, plus local taxes.

Currently, the Centre levies Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre of excise on diesel. The states levy their own VAT, with Mumbai levying the highest duty on petrol. States also levy ad valorem tax on petrol and diesel.

The move may translate into a minor reduction in the prices of petrol and diesel for the common man but save the Centre from paying compensation to states on account of a loss they may incur if the two fuels are brought under GST in true letter and spirit.

Currently, the total tax incident on petrol is between 45% and 50%, while it is between 35% and 40% on diesel.

'No pure GST'

"There will be no pure GST on petrol and diesel. It does not happen anywhere in the world. In India too, there will be a combination of GST and VAT," a top government official said on Wednesday.

The new taxation planning comes days after BJP President Amit Shah, along with Finance Minister Piyush Goyal and Petroleum Minister Dharmendra Pradhan, assured that officials at the highest level in the government were engaged in working out a "long-term" solution to skyrocketing fuel prices.

According to back-of-the-envelope calculation, petrol rates could come down to Rs 52 per litre even if the highest rate of 28% under GST is charged on the fuel but under those circumstances, the states will not have any income as part of their taxation on petrol and diesel.

Under the current planned model, the states will not lose any money on account of taxes on petrol and diesel.

Union Minister Arun Jaitley had on Monday said that cutting taxes on petrol and diesel would throw India into a "debt trap".