On Friday, the GST Council may consider taxing petrol, diesel, and other petroleum products under a single national GST regime, a move that would likely necessitate significant concessions from both the federal and state governments on the revenue collected from these taxes.
According to sources familiar with the development, the Council, which consists of central and state finance ministers, will likely consider extending the time for duty relief on Covid-19 essentials at its meeting on Friday in Lucknow.
GST is seen as a potential solution to the country’s near-record high petrol and diesel prices, as it would eliminate the tax-on-tax cycle (state VAT being levied not just on the cost of production but also on the excise duty charged by the Centre on such output). The Kerala High Court had urged the GST Council to consider whether or not to include petrol and diesel in the scope of the goods and services tax (GST) in June, based on a writ petition.
According to the sources, the issue of placing gasoline and diesel under GST will be brought before the Council for debate in light of the court’s request. On July 1, 2017, a nationwide GST was implemented, which absorbed federal taxes like excise duty and state levies like VAT. However, five petroleum products — gasoline, diesel, ATF, natural gas, and crude oil – were temporarily excluded from its scope. This is because taxes on these items were a major source of revenue for both the Central and state governments.
Because GST is a consumption-based tax, putting petro goods under the system would imply that states, where these products are marketed, will get money rather than states that now benefit the most from them due to their location as the manufacturing centre. Simply said, states like Uttar Pradesh and Bihar would get more income at the expense of states like Gujarat due to their large populations and high consumption.
Because central excise and state VAT now account for about half of the retail selling price of gasoline and diesel, levying GST on them would entail imposing a peak rate of 28% plus a fixed surcharge based on the new levy’s principle being equal to the previous taxes. Bringing oil goods under GST, according to tax experts, will be a difficult decision for both the Centre and the states, since both stands to lose. Even if a product like natural gas is brought under GST, BJP-ruled states like Gujarat would lose money since taxing local production and import of the fuel generates a lot of income (LNG).
The Centre would also lose since cesses make up the majority of the Rs 32.80 per litre excise duty on petrol and Rs 31.80 on diesel, which it does not split with the states. All GST proceeds will be divided 50:50 between the centre and the states government. In its September 17 meeting, the GST Council, led by Finance Minister Nirmala Sitharaman, may also examine the modalities of extending the compensation cess beyond June 2022. This will be the first time the GST Council meets in person in 20 months. Before the Covid-19-induced lockdowns, the most recent such meeting took place on December 18, 2019.
Five commodities – crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) – were left out of the GST’s purview when it was implemented on July 1, 2017, combining over a dozen central and state levies. This was due to the central and state governments’ reliance on this sector for revenue. As a result, the central government continued to impose excise duties on them, while state governments imposed value-added taxes (VAT). These taxes, particularly the excise charge, have been hiked on a regular basis. While the taxes have not been reduced, a surge in global oil prices due to increased demand has pushed petrol and diesel to all-time highs, prompting calls for them to be included in the GST.
Incorporating oil products under the GST would not only assist businesses in deducting tax spent on inputs, but it will also provide uniformity to the country’s fuel taxation. The Council will also discuss extending the tariff discount provided on Covid-19 basics during its 45th meeting on Friday. On June 12, the preceding Council meeting was held by videoconference, during which tax rates on different Covid-19 necessities were discussed.
Source: The Times of India