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Tuesday 21 January 2020

GST on fuel: That’s a tough task as things stand now

petroleum products contributed over Rs. 524,000 crores to central and state governments, or over Rs. 4,000 per person

Bhubaneswar: The Petroleum Planning and Analysis Cell estimates that in 2016–17, petroleum products contributed over Rs. 524,000 crores to central and state governments, or over Rs. 4,000 per person. It means that total tax collected from petroleum products is almost 3.4% of GDP or about 30% of the total indirect tax collected during fiscal 2016-17.
Though Union oil minister Dharmendra Pradhan today voiced optimism that petroleum products will be brought under the GST purview that will help in checking volatility in fuel prices, it won’t be an easier task to manage the revenue foregone as an even higher slab of GST may lead to huge deficits.
The central and state governments will have to prune exemption lists or make suitable amendments to compensate for the revenue losses due to the inclusion of petroleum products under GST.
When rising petrol and diesel prices drew howls of protests from consumers, a defensive oil minister Dharmendra Pradhan made a pitch to include petroleum products under GST. However, finance minister Arun Jaitley has added his voice to the thought. The Centre favours bringing petroleum products under GST, the FM says, but only after a consensus emerges among States.
Petroleum and oil products contribute significantly to the governments’ tax kitty. Excise collections on these products collected by the Centre jumped from about 99,000 crore in 2014-15 to about 2,43,000 crore in 2016-17. The value-added tax (VAT) collected by States and Union Territories jumped from 1,37,000 crore in 2014-15 to 1,66,000 crore in 2016-17.
Multiple hikes in excise duty on petrol and diesel over the past few years have sharply increased the Centre’s dependence on these products. Also, petroleum products are said to account for about 40% of States’ revenue. A good share of the excise duties also goes to States. Under the current regime, the effective tax rate on petrol and diesel is even 100% or more. In comparison, the maximum rate (including cess) under GST is a far lower 45%. Input tax credits under GST will bring down the effective rate further.


“In the long run, petroleum products are bound to be included within the ambit of the GST regime … It is only a matter of time. It will immensely help in containing prices of petrol and diesel,” Pradhan told reporters here.

He, however, declined to specify any timeline on bringing petroleum products under the Goods and Services Tax (GST).

The states, he said, appear to be unwilling to include petro products within the GST ambit as they are deriving major financial benefits in the existing arrangement.

The inclusion of petrol and diesel in the GST regime would bring uniformity in taxation, he said, adding the GST council is working in this direction.

Taxes are one of the main factors behind rising fuel prices in the country, he said, adding bringing petroleum products under the GST regime can be a long-term measure to tackle the problem and the Centre is working out a holistic strategy to address it.

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