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States may be allowed to bring in petroleum products like petrol, diesel, CNG and cooking gas LPG under value-added tax from the existing sales tax.
"LPG, CNG, petrol, diesel and all other petroleum products can be taxed under VAT," an official source told PTI on Monday.
The Empowered Committee of State Finance Ministers had earlier decided to keep petroleum products out of VAT. The White Paper on VAT also put petroleum products out of its ambit while listing other inputs on the 4 per cent category.
But since petroleum products constitute a major portion of industrial and agri inputs, sources said it may be allowed to be brought under VAT along with other items.
Some states like Delhi has imposed VAT on diesel at 20 per cent, which is higher than the 12 per cent sales tax charged earlier.
Similarly, Delhi imposed VAT on LPG at 12.5 per cent, which is also higher than the previous sales tax rate of 8 per cent.
When contacted, Delhi Finance Minister A K Walia said the VAT rate on diesel was still lower than sales tax rates of most states, including Uttar Pradesh and Maharashtra.
Uttar Pradesh charges a sales tax of 23 per cent on diesel while it is as high as 35 per cent in Maharashtra.
Walia said there is unlikely to be any shift in business from Delhi to other states like Haryana where tax rate for petroleum goods is 12 per cent.
Although Delhi has brought petro products under VAT, not all states may be willing to do so.