Is the government considering putting rising petrol and diesel prices within the scope of Goods and Service Tax (GST)?
This question has started surfacing over again. MPs put this query to the government at Monday’s Lok Sabha. Besides that, the question of edible oils prices in Lok Sabha has also been highlighted.
It’s obvious that the price of petroleum today and diesel in some regions of the nation have surpassed all records and broken the ₹100 mark. These rapid price rises hurt the average man’s purse. Everyone is wondering why prices are rising daily. Even our finance minister Nirmala Sitharaman is concerned about this, and links ‘Dharam Sankat’ or ‘Divine Predicament’ to the fast increase in gasoline costs.
Petrol prices may be reduced to 75 cents per litre across the nation if brought within the Goods and Services Tax (GST) purview. Still, a lack of political will is maintaining Indian oil product prices among the highest globally, according to SBI analysts on Thursday.
Analysts say that fuel is 68 cents a litre and the Center’s and the states’ income loss is just one lakh of crore, or 0.4 percent of GDP, assuming world oil prices of $ 60 a barrel and an exchange rate of 73 cents to the dollar.
The government in the House of Commons was asked whether the Minister of Finance would gladly explain why petrol and diesel were not included under GST. Does the government have any claims that GST covers fuel and diesel? If so, what has been done thus far with them?
It also questioned the government whether there was a debate in the meeting of the GST Council on putting petroleum diesel and LPG into the field and whether there was any conversation with the States on this.
In reply to their remarks, Finance Minister Pankaj Chaudhary said that the GST recommendations would be needed to include gasoline, diesel, and LPG. The GST Council has not suggested putting these goods under the GST till now, which also includes states that are represented. He claimed numerous comments were received about GST’s supply of fuel and diesel. The meeting of the GST Council was held on 12 June 2021 during its 44th meeting.
The Minister also stated to the Parliament that the GST Council would consider putting gasoline and diesel under GST as and when it considers that revenues should be kept in mind. But the GST Council has not addressed a proposal of this kind and, in terms of LPG, already falls within the scope of GST. It is also possible to note that Finance Minister Nirmala Sitharaman indicated earlier that the national government would consider bringing gasoline and diesel under GST.
In addition to fuel and diesel, the Sabha loco also raised questions on decreasing edible oil prices. The government was asked what measures had been done or initiatives had been taken to lower edible oil prices. Does it suggest reducing tariffs on edible oils? Chaudhary stated that customs duties on raw palm oil decreased from 35.75% to 30.25% on June 30, 2021. This refined palm oil tariff was decreased from 49.5% to 41.25%. The lower rate will apply until 30 September 2021.
Currently, each state has its own method of taxing gasoline, while the Centre collects its own taxes and cess.
Petrol prices have reached 100 per litre in some areas of the country, raising concerns about the high taxation that is making the fuels more expensive.
According to SBI economists, the GST system’s unfulfilled objective of integrating oil and diesel within the tax framework for goods and services might be to bring prices into the new indirect fiscal structure.
“The Centre and states are hesitant to include crude oil items in the GST regime since sales tax/VAT (value-added tax) on petroleum goods is a significant source of revenue for them.”As a result, the political will to put crude oil under the scope of GST is lacking,” they say. States now elect to impose a combination of ad valorem tax, cessation, additional VAT/surcharge in accordance with their needs, which are imposed on account of the crude price and transport charges, the commission from suppliers and the Center’s flat duty on excise duty, they explained.
The economists have come to the final estimates for crude prices and dollar, with transport charges of ₹ 7,25 to diesel and ₹ 3,82 to petrol, dealer commission of ₹ 2,53 to diesel ₹ 3,67 to petrol, cessation of ₹ 30 for petrol and ₹ 20 to diesel that are to be equally divided between central and state, GST rate of 28 per cent.
According to the report, a 15% increase in consumption (diesel) and a 10% increase in petrol consumption were used to calculate the 1 lakh crore fiscal impact of bringing petroleum prices under GST.
Under the baseline scenario, a $1 increase in crude oil prices raises petrol prices by around 50 paise and diesel prices by about 1.50, while lowering the overall deviance by about 1,500 crores.
States, who now have the largest share of tax income, will be the biggest losers if the system switches to GST, it said, swiftly adding that such a change will help consumers pay up to 30 less.
The Simulation exercise shows interestingly that the Center and the States may save almost 18,000 crores if they keep the base oil prices without giving consumers an advantage, which is above 9,000 crores if the crude prices rise by the same amount crude oil prices decrease by $10,000/barrel.
“In this way, we propose that the Government set up the oil price stability fund to compensate for revenue loss in poor times by cross-subsidizing money saved in good times without affecting consumers.
Experts recommended that a higher and graded subsidy be offered to low-income users for LPG cylinders, which may be phased down over a 5-year period.
Meanwhile, the new revenue and spending figures might result in a fiscal deficit of 8.7 percent in FY21, down from 9.5 percent in the amended budget forecasts.
According to them, it is extremely possible that the government would cancel its 49,000 crore borrowing planned for the last two weeks of March.