NEW DELHI: On Friday, the GST Council may discuss taxing gasoline, diesel, and other petroleum goods under a unified national GST system. This move could necessitate significant concessions from federal and state governments on the money collected from these taxes.
According to sources familiar with the situation, the Council, which consists of national and state finance ministers, is likely to recommend extending tariff relief on COVID-19 basics during 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 cascading impact of tax on tax. State VAT is being imposed not only on the cost of production but also on the excise duty collected by the federal government on such products).
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. On July 1, 2017, a nationwide GST was implemented, which subsumed government taxes like excise duty and state levies like VAT. For the time being, five petroleum products were excluded from the GST: gasoline, diesel, ATF, natural gas, and crude oil. This is because taxes on these products were a significant source of revenue for both the federal and state governments.
Because GST is a consumption-based tax, putting petrol items under the system would imply that states where these products are marketed, will receive income rather than states that currently gain the most from them due to their location as the manufacturing Centre. Because central excise and state VAT presently account for over half of the retail selling price of gasoline and diesel, levying GST on them would entail collecting a peak rate of 28% plus a fixed surcharge based on the new levy’s principal being equal to the previous taxes.
Bringing oil items 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 will lose money because taxing local production and importing the fuel generates a lot of cash (LNG).
In its September 17 meeting, the GST Council, chaired by Finance Minister Nirmala Sitharaman, may also address the modalities of extending the compensation cess beyond June 2022. This will be the first time in 20 months that the GST Council meets in person. Before the COVID-19-induced lockdowns, the most recent such meeting took place on December 18, 2019. The GST, which merged over a dozen national and state levies on July 1, 2017, excluded five commodities: crude oil, natural gas, gasoline, diesel, and aviation turbine fuel (ATF) due to the central and state government’s reliance on this sector for revenue.
As a result, the federal 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 regularly.
While 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 brought under GST.
Including oil items in the GST will not only assist businesses in deducting tax paid on inputs, but it will also bring about uniformity in the taxation of fuels across the country.