Under GST, the price of petrol and diesel can provide a relief of about Rs.20 per litre for consumers who are currently paying sky-high prices. Then, why it’s not yet listed under GST is what that needed to be answered.
However, the move will help to wipe out more than half of tax revenue from the petroleum sector for states and the Centre. This might be the reason why it’s yet to get support in the GST Council meetings.
When it is analysed, about the benefits of bringing petrol and diesel under GST. The estimates reveal that retail price of petrol in Delhi will fall from Rs.78.11 per litre to just Rs.63 even if the GST Council approves the highest rate of 28% in addition to 22% compensation cess on the fuel. This will be the highest GST rate for luxuries vehicles that is applicable on SUVs or large automobiles.
In Delhi, even if the highest GST rate of 28% and the ceiling rate of 25% cess under the GST legislation is adopted, the retail price of petrol will be Rs.65 per litre. Even then the retail price of petrol will be cheaper by close to 20% of the current rates.
Any combinations of GST-cess lower than the above mentioned will result in retail prices falling by as much as Rs.20 per litre.
Under GST, the fall of diesel price would be marginally less since tax on the fuel is comparatively less than petrol. However, GST at a uniform rate on these petroleum products will reduce the price difference between these two products at the retail level. This is possible because the base price of both petrol and diesel is almost the same in international markets.
However, the inclusion of petrol and diesel under GST will substantially have impact on government revenues. The effect will be more on the Centre since it has gradually increased its share of taxes by effecting nine increases in excise duty on the two auto fuels between November 2014 and January 2016. The excise revenue from oil is more than doubled from Rs 99,184 crore in FY15 to Rs 2,42,691 crore in FY17 and it is all set to hit the same number in FY18.
Along with all these, including petrol and diesel under GST can have severe impact on all other indirect taxes levied on the fuels at both central and state levels. Then, annually, the Centre’s share of taxes from these two petroleum products could fall by over Rs 1 lakh crore to just about Rs 1,30,000-Rs 1,40,000 crore.
Similarly, the impact on states revenue could be around Rs 50,000 crore annually. The hit will have severe impact on states such as Maharashtra, Andhra Pradesh, Kerala, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Telengana that levy high VAT of over 30% on petrol.
An oil industry expert said, “GST would remove a lot of complications that has crept into taxing auto fuels and prevent consumers from wide volatility in retail prices. Moreover, with the growth in consumption expected in India, the government’s revenue loss would also be made up in some time.”However, reducing the retail prices, GST will avail oil marketing companies to reduce their overall tax burden that will force them to further bring down the retail price of petrol and diesel.
Amit Sarkar, partner and head (indirect tax) at private consultancy BDO India said, “The oil companies are today not able to offset any of the taxes that they pay for refining petrol and diesel against the output liabilities which are excise duty and VAT. Companies like IOC pay GST on expenses incurred on maintenance of the refineries. The GST on the operational expenses is actually a cost for them. But they are unable to offset this against output liabilities. If the fuels are brought under GST, the overall operational cost for these companies could be lower by 8-9 per cent.”
However, talks are yet progressing to find a best possible solution. But for the last 10 days or more no solution has emerged to lookout for lasting solution to the whole issue.