Should petrol, diesel be brought under the ambit of GST? States, Centre face tough call
It has been a lingering question for long whether or not bringing petrol and diesel under the goods and services tax (GST) regime would benefit the consumers given the rising price of the fuel.
The long speculated issue could soon come to a conclusion at the 45th GST council meet that was held in Lucknow today.
This was the first time after 18th Dec 2019 that the GST council conducted a physical meeting. In the past 20 months, all the meetings have been conducted virtually.
A TOI report quoted a government source saying that the council doesn't suggest bringing petrol and diesel under GST immediately. But the Centre want the states to suggest a timeline.
Crude Oil, Natural Gas, Diesel, Petrol, and Aviation Turbine Fuel(ATF)- these five commodities were kept out of the GST umbrella when it was introduced in July 2017.
This was decided considering the revenue dependence of the central and state governments on these goods.
Diesel and Petrol prices
Soaring global oil prices have in turn spiked petrol and diesel prices domestically and are pushing the demand to bring the two under GST.
Fuel prices haven't come down from record high prices as the retail rate faced 41 increases since April 2021. The prices haven't been revised down since the past 11 days.
Prices of petrol in Delhi, Mumbai, Chennai and Kolkata for a litre is Rs 101.19, Rs 107.26, Rs 98.96, Rs 101.62.
Since the global prices are expected to go down, prices might see some relief in the coming days.
OPEC and allies have agreed upon increasing production levels to avoid stark upward price revisions.
Price changes post GST
A maximum tax of 28 percent is likely to be levied upon the fuel prices, should the fuel prices be covered under the GST regime.
This also means that a uniform GST rate will replace the different rates of VAT and excise that the state and Centre levy on fuel rates.
Currently, the base price of petrol in Delhi is Rs 40.78 and if it includes freight charges, it amounts to Rs 41.10.
If we add an excise duty of Rs 32.90, dealer commission of Rs 3.84 and VAT of Rs 23.35. This totals up to a retail selling price of Rs 101.19.
VAT and excise duty are done away with if this price is regulated by a GST regime, which will come down to a total retail price of Rs 56.44.
Similarly for diesel, the retail selling price would fall from Rs 94 a litre to Rs 50.
How will government revenues be impacted?
It would be a tough decision for the GST council taking into account how central and state governments collect tax from petrol sales.
Generation of revenue for states would be impacted as central excise and VAT make up for half the selling price.
The Center raised excise duty by Rs 13 a litre on petrol and by Rs 16 a litre on diesel during pandemic when oil prices had sunk.
As a result, collection from diesel more than doubled to Rs 2.3 lakh crore from Rs 1,12,032 crore in 19-20 while that from petrol rose to more than Rs 1 lakh crore from Rs 66,279 crore in the 2019-20 fiscal.
States with the highest share of tax revenues then would be the biggest losers should this happen.
Why states against fuel under the GST system?
States would suffer an annual loss of Rs 2 lakh crore if the two commodity prices are regulated under GST as they collect tax, said BJP leader Sushil Modi had told the Rajya Sabha.
Maharashtra deputy chief minister Ajit Pawar is not in favor of the state not being able to levy taxes and plans to bring it up in the GST council meeting.
We are yet to get Rs 30,000 crore to 32,000 crore of our share of the GST refund. Apart from Excise and stamp duty, the largest pool of revenue for the state government is from the GST,” he said.
Kerala finance minister K N Balagopal too stated that the state will oppose this move as it might then lose Rs 8,000 crore annually.
Both Centre and states will stand to lose. Some experts believe that it would be a tough call to bring petrol and diesel under the GST umbrella.
Rajat Bose, partner at Shardul Amarchand Mangaldas and Co told news agency ANI, as mentioned in a TOI report, that the move would help the industry as it would reduce cost. He added that prices would come down as VAT and excise wouldn't be required to be paid by the consumers.
He pointed out that since it's a major source of revenue for the states it would be a difficult move to make.
Anil Gupta, managing director of Okaya Power Group also told ANI, as per a TOI report, GST has been 5 per cent on electric vehicles, but 18 percent for items like batteries, electronics charges. He added that this inverted duty structure should be rectified.
The Economic Times 18-09-2021