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Why the government must move fuel to GST
Why the government must move fuel to GST

Why the government must move fuel to GST

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Fuel prices have hit all-time highs. Petrol crossed Rs 80 a litre. Diesel hit new records too. Fuel prices are technically supposed to be market driven, linked to international crude prices and foreign exchange rates. Practically, they are not. Both central and state governments tax fuel; the rates have varied wildly over the years. Rounding off for simplicity, the Centre taxes petrol at Rs 20 a litre. State taxes vary, but say for Delhi, they are around Rs 17 a litre. Hence, taxes amount to Rs 37 a litre. Without these, petrol at pumps would cost only Rs 43 per litre. This implies a whopping 84% tax on petrol, way higher than even the high-end slab of GST (28%), the supposed catch-all tax for goods and services in the country.

While tax on fuel has always been high, the last few years have been exceptional. Four years ago, central tax on petrol was around Rs 9 per litre (vs Rs 20 now), while state taxes were Rs 14 a litre (vs Rs 17 now). If we simply went back to those levels, the current petrol price would be just Rs 63 per litre.

So what happened in the past four years? Well, crude oil prices fell. As per policy, pump prices should have dropped, reaching Rs 40 a litre. However, the government interfered and raised taxes, cleverly ensuring that final petrol prices at pumps remained unchanged. As a result, you the consumer lost the benefit of lower crude prices. The consumers didn’t notice. Maybe they were just happy the prices didn’t rise. The government, meanwhile, had a windfall as fuel-related revenues doubled. Rough estimates suggest the Centre now makes around Rs 3 lakh crore from taxes on petrol products, and the states another Rs 2 lakh crore. To put it in perspective, the entire Union budget is around Rs 24 lakh crore, making fuel taxes a nice chunk of the government’s income.

Now, depending on whose side you are on, you may like or dislike this move. Some may say this was the only way the government could have fiscal discipline, which we never had in the past few decades. The extra money can be used to reduce our debt and increase welfare schemes. Detractors will say the fuel tax increase was a ploy to gouge more out of the middle class, which is fleeced at any given chance. Of course, all these discussions should have happened a few years ago when tax rates were changed, but somehow it didn’t attract much notice then. Until now, when the low crude oil price party has ended.

Crude prices shot up again. The rupee fell. Now, the taxes raised a few years ago seem like a huge burden on the consumer. The opposition took the issue head on, striking a chord with the middle class. Whether the BJP government will buckle or not remains to be seen. So far they haven’t. Maybe they think the angst people feel is temporary — either crude prices will fall again or people will just accept the hike and move on.

However, to think record fuel prices will have no political cost would be a mistake. Almost every political party takes the middle class for granted. Robin Hood style, they take from the middle class and pass it on as welfare schemes to the poor. By doing this, they hope to win more votes than the people they upset. However, fuel prices matter to all Indians now more than ever before. The jump in prices not only affects affluent voters with big vehicles, but also those with bikes. It also eventually causes inflation, which directly affects the poor. Taxation has its limits, and when an essential commodity like fuel is taxed at 84%, people do see it as unfair.

Also Read : Why GST on petrol and diesel prices may not lower fuel prices

The ideal solution is to bring fuel under GST, anyway the right thing to do if you go by the spirit of GST as a universal indirect tax. If fuel moves to GST, petrol prices will be a mere Rs 55 a litre at current prices. Imagine the joy it would give to millions. Imagine the love GST would get, and the boost it would give to the economy.

Of course, a reduction in fuel taxes from 84% to 28% will mean a big hit to government revenue — of around Rs 2-3 lakh crore, or 10-15% of its spending. However, the government could, and should, have more creative ways to raise money — higher disinvestment, land sales, growing GDP faster and widening the tax net, for instance. Scaling back expenses and pulling out of schemes that don’t work can also help cover some of the shortfall. Finally, while deficit control is always important, sometimes it is important to let go. Loosen the purse strings when people are suffering too much.

The long-term solution, and something that could have prevented all this, is to consider fuel hedging, or locking in future purchase prices when crude prices are low.

Lowering fuel taxes is a chance for the government to give relief to the consumer, make the GST more comprehensive and take the arbitrariness out of taxation. While it won’t be easy to bridge the revenue gap, it’s about time we found more innovative ways to raise money than just taxing the middle class some more.


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Opinion | Why GST on petrol and diesel prices may not lower fuel prices

Opinion | Why GST on petrol and diesel prices may not lower fuel prices

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Over the last few days, there has been a strong body of opinion advocating the case for bringing oil products under the goods and services tax (GST). GST on petrol and DieselThere is no gainsaying the fact that petrol and diesel are one of the most heavily taxed products in India. For instance, about 45 percent of the price that a consumer pays for a litre of petrol at the pump go as taxes to the Centre and states.

GST, so the argument goes, will help sharply cut taxes in the two transport fuels, making it cheaper for people to tank up their vehicles. The basic assumption in this line of argument is that the GST rate for petrol and diesel will be fixed at the highest slab of 28 percent. Since GST, by definition will be a consolidated single levy, such a move will lower the tax incidence by about 17 percent, pulling down retail prices by several rupees a litre.

Such a deduction, elegant as it may appear, can be misleading.

For one, it disregards the states’, and the Centre’s, fiscal fixation for maintaining “revenue neutrality”. A revenue neutral rate (RNR) is the tax rate that results in similar tax earnings for the government despite changes in design or structure of the levies imposed.

One of the primary reasons why GST’s implementation took more than a decade was lack of consensus on the likely RNRs on many products.

Successive governments, both at the Centre and states, have used petroleum products as milch cows. In 2017-18, the Centre earned Rs 2.29 lakh crore from central excise duty on petroleum products, which is about 11 percent of the Centre’s total gross tax revenues of Rs 19.46 lakh crore earned during the year. Of course, a part of this was shared with states as part of an agreed devolution formula.

Likewise, states earn significant revenues from taxing petroleum products. This is particularly true for the richer or the so-called industrialised states such as Karnataka and Maharashtra.

In 2017-18, Karnataka, which levies a state value-added tax (VAT) of 30.28 percent on petrol and 20.23 percent on diesel, earned Rs 13,307 crore from taxes on petroleum products. This accounted for 14.5 percent of the states’ total tax revenues of Rs 91,718 crore, or for every Rs 100 that the Karnataka government earned in 2017-18, Rs 14.5 came from petroleum products alone.

Similarly, for Maharashtra. The state, which levies close 40 percent as VAT on petrol and about 25 percent on diesel, earned Rs 25,611 crore from taxes on petroleum products in 2017-18, which translated into 15 percent of the state’s total tax revenues of Rs 164,979 crore during the year.

The pattern is more or less similar across most states, illustrating how a disproportionately high amount of tax revenues are coming from just one set of products, both for the Centre and the states.

Given this historical peculiarity, states are unlikely to settle on a GST rate that would be lower than the RNR. What could be the possible revenue neutral GST rate for petrol and diesel? It would probably be in the range of 40-45 percent. Will a GST rate of 40-45 percent on the two fuels bring down their retail prices? Unlikely, because in the final analysis, the tax component on petrol and diesel prices at the fuel station remain the same.

The high tax structure in petroleum pricing is a painful legacy issue in a rather flawed design of India’s energy economics. States are unlikely to let go of their fiscal powers to tax petrol and diesel, and also settle for lower revenues. The Centre could also end up losing substantial earnings and may have look at other sources to reimburse states for their revenue loss.

At 40-45 percent, GST has nothing for the consumer. At best, it will help in tidying up the system by subsuming a welter of local and central levies into a combined tax.

A lower GST on fuel will have to come bundled with higher rates on some other products and services. One possible option could be to significantly hike the tax rates or cess for luxury, demerit and `sin’ goods. It will help offset revenue losses for the states and the Centre, fix a lower GST for petrol and diesel and also lower prices at the fuel station. After all, not many would mind GST at 28 percent for fuel, at the cost of higher tobacco prices. It will make tanking up cheaper, even if smoking becomes dearer.


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Source: Money Control
Bringing auto fuel under GST could bring down prices by as much as Rs 29

Bringing auto fuel under GST could bring down prices by as much as Rs 29

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Bringing petrol and diesel under the ambit of the Goods and Services Tax (GST) could reduce the prices of the two petroleum products by around Rs 29 in Mumbai, experts suggest, according to a report by The Times of India.petroleum-under-gst

The report cites experts and dealers as saying that if fuel is brought under the GST regime, at a rate of even 40 percent, the price of petrol will go down by Rs 29 while diesel could go down by Rs 14. Moneycontrol could not independently verify the report.

While the international crude prices have dropped, people in India are paying higher prices because of a progressive increase in taxes. While the Centre has increased excise duty by Rs 10 per litre, in Maharashtra, VAT and surcharge increased by Rs 6.97 per litre.

While its basic price for the oil companies fell by Rs 5.52 per litre in four years, people in Mumbai are paying a retail price of Rs 6.33 per litre more, the report claims.

Central excise duty on diesel has increased by Rs 11.77 per litre while VAT and surcharge has increased by Rs 1.84 per litre in the last four years.

Petroleum pricing expert and fuel dealer Kedar Chandak told the newspaper, “If the prime minister and states’ chief ministers decide to give up a certain amount of taxes to extend relief to consumers and transporters, they can replace the existing multi-layered transport fuel tax structure with GST.”

“It is all the more tempting for governments to do so because it is an easy way to fill state coffers,” a transport expert said, according to the report.

Petrol and diesel prices continue to soar and touched another peak on Friday. Petrol was hiked by 36 paise to Rs 85.65 per litre in Mumbai.

This is the 12th straight hike in a row. Diesel prices on the other hand, were hiked by 24 paise to Rs 73.20 per litre in Mumbai. Petrol prices in Delhi were increased by 36 paise to Rs 77.83 per litre and diesel by 22 paise to Rs 68.75 per litre.

Petrol prices have risen by Rs 11.02 while diesel has risen by Rs 7.27 in the past 12 days in Mumbai.

Petroleum Minister Dharmendra Pradhan had earlier said that the government will intervene to reduce prices while his colleague Nitin Gadkari said that subsidising petrol and diesel to bring down their retail prices will take money away from government’s social welfare schemes.

Source :  Money Control
Trying to bring petrol, diesel under GST: Dharmendra Pradhan Union Oil Minister

Trying to bring petrol, diesel under GST: Dharmendra Pradhan Union Oil Minister

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Dharmendra Pradhan GST

Union Oil Minister Dharmendra Pradhan today said his Ministry is trying to bring petrol and diesel under the purview of the Goods and Services Tax (GST).

“We are trying that petrol, diesel and kerosene should also come under the ambit of GST. We are hopeful that the GST Council will agree to it shortly,” the Petroleum and Natural Gas Minister told reporters in Ujjain.

Responding to a query, the minister said the spike in petrol rates in the international market has impacted the cost of the fuel in India.

 “Besides, the state governments too levy cess on petrol,” he said.

The Congress had demanded that petroleum projects be brought under the GST ambit.

In Indore, Pradhan rode a bicycle at “Saksham Cyclothon” to send the message of save fuel and environment.

Also read: GST rate cut: From diamonds to used cars, here’s full list of revised items

The Petroleum Conservation Research Association (PCRA) and the Indore Cycling Association (ICA) claimed that nearly 30,000 cyclists participated in the event.

On the occasion, Pradhan said cycling promotes healthy life and helps in conservation of energy.

“Prime Minister Narendra Modi has appealed to the countrymen to save energy,” he said.

Pradhan said PCRA and ICA would shortly sign a memorandum of understanding (MoU) for the promotion of cycling throughout the year in the city.

Also read: 25th GST Council Meet:Rates revised for 29 goods, 53 services, says Arun Jaitley

BJP general secretary and Cycling Federation of India (CFI) chairman Kailash Vijaywargiya and others also rode bicycles at the event.

Under the aegis of the Cyclothon, people from various walks of life took part in different distant categories–ranging from 13 kms to 94 kms.

Source: ET
Decision on bringing petroleum under GST after considering revenue impact: MP minister

Decision on bringing petroleum under GST after considering revenue impact: MP minister

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Decision on bringing petroleum under GST after considering revenue impact: MP minister

The Madhya Pradesh Government today said it would decide on bringing petroleum products under the Goods and Services Tax  (GST) after considering its impact on the revenue.

Speaking to reporters after a cabinet meeting here, Finance Minister Jayant Malaiya said, “The government will take the revenue outcome in consideration before reaching consensus on bringing petroleum products under the GST regime.

“Discussions are going on about bringing petroleum products under the GST’s purview. We will take appropriate decision whenever the proposal is brought before the GST Council,” he added.

To a question, Malaiya admitted that there is a shortfall in tax collection following the introduction of the GST, but added that the situation has been improving.

He, however, parried the questions about the quantum of shortfall.

On October 13, the state government reduced the value added tax (VAT) on petrol and diesel by three and five percent, respectively. Besides, the additional cess of Rs 1.5 per litre on diesel was also withdrawn.

Malaiya had then claimed that diesel had become cheaper in MP compared to neighbouring Rajasthan, Gujarat and Chhattisgarh, while also mentioning that about 34 per cent of the commercial tax revenue comes from VAT and other taxes on petroleum products.


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Source : The Economic Times

GST council will take decision on bringing petroleum products under GST, says Petroleum Minister

GST council will take decision on bringing petroleum products under GST, says Petroleum Minister

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Dharmendra Pradhan GST

Union Petroleum Minister Dharmendra Pradhan said decision to bring petroleum products under the ambit of the Goods and Services Tax (GST) will be taken by the GST Council. He said that if the Petroleum products are brought under the ambit of the GST then it would provide relief to the customers.

Talking to the media after attending the Dussehra celebrations here, Pradhan said, “Slowly the price of the petroleum products is being stabilized and this matter will be taken to the GST Council and with the help of the state and central government it will be brought under the GST so the customers can get relief.”

Also read: Petrol Should be Brought Under GST, Reiterates Dharmendra Pradhan

He said, “India has reached towards a crucial point under Prime Minister Narendra Modi; a serious fight has been started against the corruption, which is akin to Ravana. Our country is developing and will grow further.”

On being asked about GST, he stated, “I believe GST came as a festivity for the nation; it was implemented after being thoroughly discussed and taking advice from the state government, central government and the people.” “When something new comes into force, it takes time to show benefits and there are small issues with it also but the government is cautious and is looking after that the businessmen have no problems. The way collection of the GST is increasing, I hope that the businessmen are supporting it equally,” he stated.


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Source : The Financial Express
States against govt plan to levy GST on petroleum products

States against govt plan to levy GST on petroleum products

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petroleum-under-gst

States have refused the central government’s appeal to bring petroleum products under the ambit of Goods and Services Tax (GST) even as prices of petrol and diesel continue to skyrocket in contrast to global standards.

Taxes constitute more than 50% of the price consumers pay for petrol and diesel. States, which charge sales tax and VAT (applied on top of the central excise duty) are reluctant to move away from the present tax regime unless the Centre promises special annual grants, top government sources told Hindustan Times.

Sources in the Union finance ministry said talks with the oil ministry is currently on but it’s the GST Council, the highest decision-making body of the indirect tax regime, that will have the final word on the inclusion of petroleum products. The Council is chaired by Union finance minister Arun Jaitley with all of his state counterparts as its members.

Also read: Petrol Should be Brought Under GST, Reiterates Dharmendra Pradhan

“It has only been two months since the GST was introduced. We have to give time to the states to get over the teething problems before we start discussions on whether petroleum products should be brought under GST. This matter is unlikely to be taken up immediately,” said a senior official in the finance ministry, refusing to be identified.

For the states, moving to the GST for petroleum products could amount to a “loss” in revenue. While the Centre collects ?21.48 as excise duty, states charge value added tax (or VAT, which varies from state to state, ranging between 25% and 48%) along with 25p as pollution cess with a surcharge.

In 2016-17, the combined revenue collected from the petroleum sector was ?463,089 crore, according to figures available with the ministry of petroleum and natural gas. Of this, states’ share was ?189,587 crore.

Under GST, even if petrol and diesel are charged at the highest slab of 28%, states, which get a substantial chunk of their revenue from the sector, will stand to lose considering they will only get 14% of it — much lower than the present rate of VAT.

“Taking the autonomy of taxing petroleum products away from the states will hurt our exchequer. States have freedom to change the VAT on petrol and diesel. But under the GST, this flexibility will go,” said a senior official in the finance ministry of a non-BJP ruled state.

Other state finance ministers HT spoke to said they are ready for the change “only if state-specific grants are announced by the Centre” to make up for any revenue loss.

With highest VAT and the surcharge in the country, Maharashtra government earns over ?20,000 crore a year from taxes on petrol and diesel.

“Bringing petrol and diesel under GST regime will lead to the huge loss to the state exchequer. There is rising demand of doing away with the surcharge, but we recently raised it on three occasions to generate funds for drought mitigation measures. We accumulate more than ?3,000 core from the surcharge. I don’t think doing away with the surcharge and VAT is possible at this stage,” said an official from the finance department.

The Centre has been under pressure from the opposition as well as consumers for the steady surge in fuel prices.

The ire is mainly directed at the fact that global crude oil price has fallen from $106 per barrel in July 2014 to $26 in January 2016 — a fall of 75%. At present, the global price of crude oil is $62.75 per barrel.


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Source :  The Hindusthan Times
Petrol Should Be Brought Under GST, Council Appealing to States: Dharmendra Pradhan

Petrol Should Be Brought Under GST, Council Appealing to States: Dharmendra Pradhan

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Dharmendra Pradhan GST

Petroleum Minister Dharmendra Pradhan has reiterated that the Goods and Services Tax (GST) must cover all petroleum products. He said that the GST council is appealing to all states to come to a consensus with the Centre on bringing petrol under the purview of the uniform tax. He said that this will help with tax predictability. Meanwhile, petrol price remained same as the previous day on Monday, September 18. While it was Rs 70.51 per litre in Delhi, petrol cost Rs 79.62 per litre in Mumbai.

The proposal for bringing petrol under GST came as petrol and diesel prices rose by over Rs 7 per litre in the past two months. The prices have been constantly rising under dynamic pricing which came into effect on June 16. The prices are now on a three-year high.


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On Sunday, Dharmendra Pradhan said that the rise in prices of petrol was due to several factors. “You have to appreciate the changing scenario. Everyday there is a pinch and relief. Due to natural calamities in the coastal areas of the United States, 13 percent refining capacity has been reduced which impacts the international market and which is now pinching,” the minister said.

Reports say that if fuel is brought under GST, petrol price can come down to Rs 38 per litre from Rs 70 at 12 per cent GST. As of now, petrol prices also contain other elements like Centre-imposed excise duty, state-imposed VAT and dealer’s commission.

However, former oil minister S Jaipal Reddy has said that bringing fuel under GST is “desirable”, but not feasible as the states would oppose it, but the Centre can cut excise duty on them. “While putting it (petroleum products) in GST is advisable, desirable, it’s not a feasible proposition because state governments…Of the BJP also, will not agree,” the senior Congress leader told PTI in an interview.

 


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Source :  India.com