Will inclusion of petrol, diesel in GST net bring uniformity in taxation?

The Goods and Services Tax (GST) is the most ambitious tax reform in the post-independence era, but it still has a long way to go because. In a bid to make it people friendly, the government is addressing a host issues to expand its ambit, through Goods and Services Tax Council meetings. The next such meet, which will be 28th sitting, is slated to be held on July 21, wherein, the government is expected to discuss bringing petroleum products under this tax regime.

The demand to bring petroleum products under the ambit of the goods and services tax (GST) has been raised by different segments, with the skyrocketing prices of petrol and diesel. Experts opine that the government should take steps to include petroleum products under GST in the current financial year, but this needs a strong will power on the part of the government because these products have cascading effect and half-hearted approach, just to placate people, will not serve the purpose. 

One major argument is put forth that by bringing petroleum products under the GST regime the government would affect its revenues collected in the form of taxes on these products. As the government has breached FY18’s fiscal deficit target and has raised the target for FY19 from 3% to 3.3%, experts have reportedly raised concerns over whether the government can afford to take a hit on the revenue front. The deliberations in 28th GST council meeting holds a great relevance because looking at assembly polls in several states and general elections next year, the government may like to bring fuel under GST to assuage the feelings of people. 

Vice Chairman of Niti Aayog, Rajiv Kumar, differing with the idea recently told IANS, "It (oil) can't be brought under GST. That's because the total state and central taxes on petrol put together are around 90 per cent right now," adding "I can`t see how any state will take a cut so huge as the highest rate under the GST is 28 per cent. A new GST band will have to be opened up -- and that will be an enormous exercise."

He did not deny the idea, but supported the idea to bring all items under the new tax system, and rather talked about reducing the taxes first on petroleum products. He further stated that both the central and the state governments should first start the process of shedding their dependence on oil taxation.

Since July 1 last year, when the new tax legislation was rolled, talks to bring petroleum products, especially petrol and diesel, under the GST are continuously on. Even top government officials and ministers are in favour of such a move, along with the Opposition parties.

Putting for the government's willingness in this regard, Finance Minister Arun Jaitley, in December last year, told the Rajya Sabha about their readiness to go ahead after building a consensus with states. This year in April, BJP President Amit Shah told a rally in Mumbai that efforts were on to bring petrol and diesel under the GST, in the wake of rising international crude oil prices hitting the domestic petrol prices to record levels. From Road Transport and Highways Minister Nitin Gadkari to Petroleum and Natural Gas Minister Dharmendra Pradhan, almost every senior ruling party members have favoured the idea.

In the first week of June in Bhubaneshwar, Dharmendra Pradhan stated that petroleum products are bound to be included within the ambit of the GST regime in the long run because it will immensely help in containing prices of petrol and diesel, but added that states appear to be unwilling as they are deriving major financial benefits in the existing arrangement.

Among states, Maharashtra Chief Minister Devendra Fadnavis however expressed willingness to bring petrol and diesel under GST in his state if a consensus was brought about on it. But states like Bihar and Kerala believe that the time is not right for this move. 

Sushil Modi, Bihar’s deputy chief minister, said, “It is not the right time for petroleum products to come under GST. It is not that petrol and diesel will become cheap if they come under GST. States will continue to impose VAT (value-added tax) over and above GST like it is done internationally.” 

Kerala finance minister Thomas Isaac also did not favour inclusion of petroleum under GST, saying “I hope it is not done and they (the central government) let the tax settle down. If you want to bring down petrol prices, you should just reduce the excise duty. Prices are high because the Bharatiya Janata Party government increased excise duty by 200-300%. Bringing it under GST is just postponing the decision till election eve.” 

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A LiveMint report, citing data from the Petroleum Planning and Analysis Cell, said that demands for inclusion of petroleum gained pace after the cost of the Indian basket of crude, which averaged $47.56 and $56.43 per barrel in fiscal year (FY) 2017 and FY18 respectively, shot up to an average of $75.31 in May 2018. 

The price was $74.89 a barrel on 27 June, rising again after tapering in the last few weeks, therefore, the government is likely to first include natural gas and aviation turbine fuel under GST before proposing the inclusion of petroleum and diesel.

Notably, the Central government collects Rs 2.5 lakh crore as tax on oil out of which almost Rs 2 lakh crore goes to the states. Therefore, states as well as with central government need to find out alternative resources to compensate it, prior to going ahead with the move. The upcoming 28th GST council meeting therefore will be significant to make the picture further clear.