Fight against central government to bring down petrol and diesel prices under GST.

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Since the genesis of GST, one question that has been thrown at the GST Council from all corners is the impact of GST on petrol and diesel prices. The Government and the GST Council has been more often than not found in search for concrete answers on the burning topic. However, recent developments hint that the GST Council will have to bring petroleum and diesel under GST ambit sooner than it was originally intended.

Accordingly to the market experts, if the government proceeded with the Pradhan’s idea and include the petroleum products under the recently implemented Goods and Services Tax (GST), then it is anticipated that there will be sharp decreases in the prices of petroleum products.

Under the present tax regime, due to the central and state levies at every stage of production, there is a spike in the overall prices of diesel and petroleum products in the country.

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The Customer has to pay a lump sum of Rs 70.52 per litre for the prices of petrol including all taxes in the country. If the government eliminates the excise duty amounting to Rs 21.48 levied by the Central Government, 27 percent VAT levied by the state government (estimated to be Rs 14.96), and dealer’s commission amounting Rs 3.24 under the GST, than it is estimated that the overall prices of petrol will decline by 30.85 per litre.

What will Happen if the Petrol & Diesel Come Under GST?

If the government categorise petroleum products under the 12 percent GST slab rate, then the prices of petroleum will decline and would come up to Rs 38.1 per litre in Delhi, whereas upon levying 18 percent GST, petroleum prices will be near to 40.05 per litre. If the government puts petrol under the highest slab rate i.e., 28 percent, then the cost of the petroleum will fall to Rs 43.44 per litre in the national capital.

Likewise, if the government categorize diesel products under 12 percent, 18 percent GST slab rate, then the diesel cost would be Rs 31 and Rs 33 respectively in Delhi. Whereas, if the government pushes the diesel under the highest slab rate structure, i.e., 28 percent then it will cost around Rs 43.44 per litre in the national capital.

The aforementioned calculations are estimated on the basis of the present petrol and diesel prices of nearly Rs 70-71 per litre and 58-59 per litre respectively. When enquired about consideration of oil products under the GST, Pradhan said that he is expected that petroleum products might be brought under the new indirect tax regime. “It will extend the enormous benefit to customers”, said Pradhan.

States Not in Support to Include Under GST

The finance ministry has stated that most of the states from across the nation have said to not include the petrol and diesel in the GST scheme for an unknown reason. The union finance minister Arun Jaitley himself commented on this topic and also mentioned that may be in near future they may make there way into the GST.

The minister also added that natural gas and real estate possess legible points which directs it to be included into the GST ambit while he was oppressing the fact that the petrol and diesel will be tried to bring it under the GST. Although he has indicated that the GST might be higher on the petrol and diesel but still assured that the overall effect will lower down the prices across the country.

As of now, the petrol and diesel are out of the GST ambit and is wholly under the state government for the tax levy purpose.

Petroleum Minister Pleads to GST Council

Recent statements from the Petroleum Minister Dharmendra Pradhan further add substantial weight on this. It seems that Petro-Diesel and GST are now main topics of concern as well as prolonged debates amidst the inner corridors of power. The prices of petrol and diesel are on a four year  high. Petrol price in Delhi could reach the Rs. 75 mark whereas diesel may record a price of Rs 65 a litre within upcoming months.     A few main reasons for such aggravated price are:

The surge in global crude oil prices

Limited production by the Petroleum Exporting Countries

Rising Consumer and Industrial Demands

Petroleum Minister Dharmendra Pradhan said, “Including petroleum products in the GST framework would be in the interest of energy, security, and consumers. Consumers will be able to buy the fuels at “rational prices” across the country if they are charged under GST”. He further added that as petrol and diesel are not under the GST framework yet, producers are not able to set off the tax paid on inputs from the final tax, and this increases the prices. The end consumer suffers. The GST council must bring petroleum products under the GST ambit in a consumer sensitive country like ours.

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Compensation To States Pose Big Hurdle

The Union Minister for Petroleum Mr Dharmendra Pradhan has over the past few weeks raised concern about the rising price of Petrol and petroleum-based products. He even hinted towards a sooner than the later inclusion of Petroleum and petroleum-based products under the GST ambit. But the reality it seems is in sharp contrast to the dreams of the billion Indians. A major agreement which laid towards the successful and mutual adoption of GST by the 29 Indian states was the Central Governments assurance of bearing the revenue loss incurred by states due to GST implementation. 11 out of the 29 Indian states were projected to lose revenues amounting to 9500 crores each. A few highlights of the Compensation Bill for states under GST LAW include:

Revenue loss compensation to States for five years

Cess for 5 years (GST Compensation Cess) to be levied

Input tax credit of Cess will be allowed

Considering the above points, states might refrain from giving up on the VAT revenues generated from Petrol and Diesel. Even if somehow the Government at centre manages to pull out the rabbit from the hat, the burning question still remains… Where would the revenue for paying state compensation come from?

No Inclusion of Petrol Diesel in GST So Far

Mr Dharmendra Pradhan has been repeatedly raising requests for bringing petrol and diesel within the GST radar. The Minister for Petroleum and Natural Gas believes that it would check the fluctuating retail prices. However, it seems Mr Pradhan’s plea so far has gone unheard. As of now, neither the Central government as well as the State Governments (most of which are ruled by the same party at the Center) seem unwilling to part with the tremendous revenue generated from the most-taxed commodity. Finance ministry has backed the decision of the Center and States. It believes that bringing petrol and diesel within GST ambit will have no visible effect on retail prices. Rather on the hindsight, it will only complicate the GST structure.

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As per experts, the global crude oil price index is now heading towards a steep upward curve. This must set the alarm bells ringing for the government. There would be now fresh pressure put on the Government from all quarters. The price of petrol and diesel are scaling and breaking records by the day. Petrol Price has reached all-time high since the present Government came to power. Diesel prices have been part of newspaper headlines for more than a few months now.

The inclusion of petrol and diesel within GST framework will help companies to avail ITC on fuel. However, as per experts, the Centre now has a surplus of Rs 20,000 crore in the revenue fund. Proceeds from the tax will only increase from here on. Further, Petrol and diesel will attract Tax levy greater than 28%. This means multiple slabs for GST. A straight NO is an answer from the Finance Ministry to keep the GST a good and simple tax.