Gadkari Pushes for 5% GST on Crude Ethanol Amid Broader Tax Overhaul

Entrepreneur

12-06-2025

While a large volume of items fall under the 5 per cent category, most of the government's revenue comes from the 18 per cent slab
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As India prepares for a significant revamp of its Goods and Services Tax (GST) system, Union Road Transport Minister Nitin Gadkari has pitched for a steep reduction in the GST on crude ethanol—from 18 per cent to 5 per cent—to support the shift toward flex-fuel vehicles, as per The Times of India report.
Currently, ethanol used under the Ethanol Blended Petrol (EBP) Programme enjoys a concessional GST rate of 5 per cent. In contrast, crude ethanol—used in pure ethanol vehicles—is taxed at 18 per cent, a disparity Gadkari warns could derail the broader adoption of cleaner, ethanol-based mobility solutions. "Why will people go for these vehicles if the price of crude ethanol is equal to or more than that of petrol?" Gadkari reportedly said, according to a source cited by TOI.
Though over 400 filling stations across the country now supply 100 per cent ethanol, uptake remains limited. Gadkari believes lowering the tax burden on crude ethanol could make flex-fuel vehicles more attractive to consumers, reinforcing India's push for alternative energy in transport and reducing dependence on imported crude.
His call comes at a critical juncture, as Finance Minister Nirmala Sitharaman leads the Centre's renewed effort to rationalise the GST framework. The exercise, which includes consultations with state governments, seeks to streamline tax rates, correct classification anomalies, and improve revenue efficiency. This effort follows two earlier attempts by separate Groups of Ministers (GoMs) to address similar concerns—both of which ended without consensus.
A third GoM is currently examining the future of cesses, particularly the compensation cess that is scheduled to lapse by March next year. The broader reform could have implications for both industry pricing and state finances.
India's GST system, introduced in 2017, includes four main tax slabs—5 per cent, 12 per cent, 18 per cent, and 28 per cent. While a large volume of items fall under the 5 per cent category, most of the government's revenue comes from the 18 per cent slab. Industry bodies have advocated for merging the 12 per cent and 18 per cent brackets into a single 15–16 per cent rate to simplify compliance. However, such changes could result in significant revenue loss and face resistance from state governments concerned about shrinking fiscal space.