With the prices of automobile
fuels surging, Minister for Petroleum and Natural Gas Dharmendra Pradhan
said in Bhubaneswar Monday that bringing petroleum products under the ambit
of the Goods and Service Tax (GST) was being considered by the government
as part of a “holistic strategy” to address the issue. Transport
Minister Nitin
Gadkari, too, favours such a move — and Maharashtra Chief Minister Devendra Fadnavis has
said that his state was fine with petroleum products being brought under a
single rate countrywide, and that a Task Force was working on it. Chief
Economic Advisor Arvind Subramanian had earlier this year made out a case for
bringing petroleum products under GST.
The trigger for all this is
rising oil prices — the benchmark Brent crude crossed the $80 per barrel mark
earlier this month — and the daily revision of prices of petrol and diesel.
How will this help?
When India moved to the GST
regime last July, petroleum products were excluded, along with alcohol,
real estate and power. In the current structure, both the central and
state governments levy a tax on petrol, diesel, crude, and natural gas.
The Centre charges excise duty, while each state has its
own Value Added Tax (VAT). Added to these are the dealer commissions,
all of which inflates the price that consumers pay at the retail pumps. (On
Tuesday, petrol was Rs 86.24 per litre in Mumbai, Rs 81.43 in Chennai, Rs 81.06
in Kolkata, and Rs 78.43 in Delhi.)
Bringing petroleum products under
GST would mean a single rate — 18% or 28% — in place of excise duty and
state VAT, and lower pump prices. It will take the political heat off
the government, and is likely to lead to lower transport costs for industry,
with benefits in terms of boosting production and competitiveness. It
will also be in keeping with the idea of a ‘single nation, single tax’,
which is aimed at improving production and employment while taxing
consumption.
Because these products are
excluded from GST, many firms are at a disadvantage: they cannot set off
inputs costs like transport, logistics, services, spares, or claim input tax
credit. They miss out on productivity gains as well.
But there’s a flip side
For both the federal and state
governments, petroleum products, like alcohol, are huge revenue earners. The Centre
mopped up Rs 1.60 lakh crore in excise duty from petroleum products in
FY18, and Rs 2.42 lakh crore in FY17, even as global oil prices fell
from 2014-15 through 2016-17. Between 2013-14 and 2016-17, the central
government collected Rs 2,79,005 crore in excise duties alone — a windfall that
helped it show a better fiscal position. Similarly, states earned Rs
1.66 lakh crore in VAT on these products in FY18; Maharashtra, for example,
currently makes close to Rs 22,000 crore.
Revenue considerations,
therefore, are likely to drive the decision on bringing petroleum products
under GST. The decision will have to be taken by the GST Council, in
which states have a major say.
Even if they agree to having
petrol, diesel and other products under GST, they will still have the autonomy
to levy an additional or top-up tax, which can vary across states. This
surcharge can be in the nature of a “sin tax” — a way for states to
discourage consumption of certain products like liquor or tobacco — and to
reduce vehicular pollution.
Even the Centre will have
reasons to worry — not only because of the huge revenue petroleum
products bring, but also because it is committed to compensating states for
any shortfall in revenues for five years.
There are other considerations,
too. The decision will have to take into account larger questions such as
those of equity, given the consumer profile of those buying fuel for
personal vehicles, and the issue of an efficient public transport system.
Credit: Indian Express Explained
(http://indianexpress.com/article/explained/auto-fuels-under-gst-petrol-price-hike-diesel-5196291/)
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