How State budgets will fare if petrol, diesel are brought under GST

How State budgets will fare if petrol, diesel are brought under GST

    While consumers will be glad to see their fuel bills slashed by the advent of a favourable rate structure under the GST, State governments will have to contend with an erosion in tax revenue.

    At the time of writing, petrol was retailing at Rs.82.48/litre in Mumbai, roughly 62% more than the Rs.50.8/litre Pakistanis shell out for a tank of gas. This is despite the fact that crude oil prices are now way lower than the $100 per barrel rate around which it was hovering in 2014.

    Extraneous factors like the production cuts enforced by the Organization of the Petroleum Exporting Countries (OPEC), and supply disruption owing to turmoil in West Asia have influenced the spike in fuel prices in India, but tax levies still constitute the biggest chunk of the retail price.

    The Minister for Petroleum and Natural Gas Dharmendra Pradhan made the case for brining petroleum products under the ambit of the Goods and Service Tax (GST) last month. In principle, a single tax rate for POL (Petroleum Oil Lubricant) products will be a far cry from the Byzantine tax structure in place today, wherein different commodities under the POL umbrella are taxed differently across the country.

    The spoils from the overall tax incidence on POL products are shared between the Centre and States, and the revenue from the Value Added Tax (VAT) collected by the States is often critical to balancing their budgets.

    Thus, while bringing petrol and diesel under the GST regime with a lower tax rate might give a temporary reprieve to customers, the impact on the health of State treasuries can be negative.

    At present, petrol, diesel, aviation turbine fuel (ATF), natural gas, and crude oil are outside the ambit of the GST, while liquefied petroleum gas (LPG), kerosene, and naphtha come under it. The GST rate chart for petroleum products has pegged naphtha, kerosene and LPG at the 18% slab. However, kerosene sold through the public distributions system (PDS) network, and LPG for domestic consumption attract only 5% tax.

    Source- The Hindu.

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