NEW DELHI: The soaring prices of petrol and diesel has time and again highlighted the question of whether bringing it under the goods and services tax (GST) regime will prove beneficial for the consumers.
The much debated and speculated issue might finally come to a conclusion on Friday when the 45th GST Council meets in Lucknow.
For the first time in 20 months, the GST council will be conducting a physical meeting. After December 18, 2019, all the GST Council meetings were done in virtual mode.
“We are not saying that we should bring petrol and diesel under GST immediately, we are basically asking states to suggest a timeline,” a government source told TOI ahead of the crucial meeting of the GST Council on Friday.
When GST was introduced in July 2017, five commodities — crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF) — were kept out of the GST purview, considering the revenue dependence of the central and state governments on them.
Current price of petrol, diesel
As demand recovered, the spike in global oil prices pushed petrol and diesel prices to an all-time high, leading to demand for bringing it under GST.
Fuel prices have been hovering at record levels on account of 41 increases in its retail rates since April this year.
However, since the past 11 days there has been no revision in prices of petrol and diesel as oil marketing companies (OMCs) kept a tab on global oil prices.
Accordingly, in Delhi a litre of petrol costs Rs 101.19 and diesel costs Rs 88.62.
Similarly, price of petrol in Mumbai, Chennai and Kolkata stood unchanged at Rs 107.26, Rs 98.96, Rs 101.62 per litre, respectively.
Diesel price also remained unchanged. In Delhi, Mumbai, Chennai and Kolkata, the fuel was sold for Rs 88.62, Rs 96.19, Rs 93.26 and Rs 91.71 per litre respectively.
Prices are largely going to remain unchanged or get some relief by way of a cut in days ahead as global oil is expected to soften again.
Oil cartel Opec and its allies have agreed to gradually raise production levels that should prevent upward price movement.
How prices will change post GST
If the GST council indeed decides to cover fuel prices under its regime, then there will most likely be a maximum tax of 28 per cent on the base price of petrol, diesel across all states.
This means the different rates of excise and VAT that the Centre and states used to levy on the fuel prices will be replaced with a uniform GST rate across the country.
At present in Delhi, the base price of petrol is Rs 40.78 and including the freight charges, the amount for dealers comes out to be Rs 41.10. This is our base price for petrol in Delhi, as per Indian Oil website.
To this we add excise duty of Rs 32.90, dealer commission Rs 3.84 and VAT on dealer commission Rs 23.35. Calculating the total we get the retail selling price of petrol in Delhi which is Rs 101.19.
Now, if prices start being regulated under the GST regime, this excise duty (which is the Centre’s share) and VAT (state’s share) will be done away with and 28 per cent GST will be levied on the base price which comes out to be Rs 11.50. To this we will add the dealer’s commission of Rs 3.84 and our retail price of petrol comes down to Rs 56.44.
Similarly, for diesel the price charged to dealers is Rs 41.27 in Delhi, as per the Indian Oil website. If we calculate as per the new regime then the price will come down to Rs 55.41 from Rs 88.62 at present.
In the same manner, a litre of petrol in Karnataka currently attracts tax of Rs 59 — Rs 32.9 central additional excise duty (AED) and 35 per cent state sales tax on the sum of the base price (Rs 41.8) and AED. Under GST, the retail rate will decrease from the present Rs 104.7 per litre to Rs 59.2 (including dealer commission of Rs 3). The price of diesel will fall from Rs 94 per litre to Rs 50.
A similar scenario can be observed across states.
Impact on govt revenues
Considering the revenue dependence of the central and state governments on the tax collected from petrol sales, it will be a tough call for the GST Council.
Central excise and state VAT (value added tax) make up for almost half of the retail selling price of petrol and diesel. Bringing them under the GST would impact revenue generation for the states.
This 28 per cent tax amount that will be levied on the pump prices, will be shared between Centre and states in equal proportion.
In spite of lower sales due to the pandemic, the Centre’s tax collection from petrol and diesel in 2020-21 spiked 88 per cent to more than Rs 3 lakh crore.
The Centre had raised excise duty by Rs 13 per litre on petrol and Rs 16 on diesel between March-end and May 2020 when oil prices crashed due to the pandemic.
As a result, collection from diesel more than doubled to Rs 2.3 lakh crore from Rs 1,12,032 crore in 2019-20. Mop-up from petrol swelled 53 per cent to more than Rs 1 lakh crore from Rs 66,279 crore in the pre-pandemic fiscal, the government had informed the Lok Sabha earlier this year.
Hence, states — which have the highest share of tax revenues at present — will be the biggest losers if the system shifts to GST.
Why states are against inclusion of fuel under GST
Both Centre and states collectively collect over Rs 5 lakh crore tax on petroleum products annually. It would not be easy to bring petrol and diesel under GST regime as states would collectively suffer an annual revenue loss of Rs 2 lakh crore, BJP leader Sushil Modi had told the Rajya Sabha while participating in a discussion on the Finance Bill 2021.
The speculation about GST on petroleum products has already received opposition from certain states.
Maharashtra deputy chief minister Ajit Pawar said the state government was against any move to encroach upon the it’s rights to levy taxes and would put forth its view in the GST Council meeting.
“We are yet to get Rs 30,000 crore to 32,000 crore of our share of the GST refund. Apart from Excise and stamp duty, the largest pool of revenue for the state government is from the GST,” he said.
Similar concerns have been raised by Kerala finance minister K N Balagopal who said that the state will strongly oppose, if there is any move to bring petrol and diesel under the GST regime.
According to him, if petrol and diesel are brought under the GST regime, the state will lose Rs 8,000 crore annually.
BJP-ruled Karnataka has also decided to oppose the proposal as its average monthly revenue is expected to decrease from the present Rs 1,500 crore to Rs 600 crore if the GST switch happens.
What experts say
Some experts are of the view that under the present Covid situation, bring petro products under GST will be a very tough call for both the Centre and states “as both will stand to lose”.
Rajat Bose, partner at Shardul Amarchand Mangaldas and Co told news agency ANI, “Bringing petrol and diesel in the ambit of GST will help the industry as it will reduce the cost. Right now consumers are bearing both value-added tax (VAT) and excise duty but once it is brought under GST it will bring the prices down.”
“It is a difficult task for Council as many states may not agree to this proposal as this is the major source of revenue for the states. If it is brought in GST ambit then they will have to share this with the Centre,” he said.
Anil Gupta, managing director of Okaya Power Group also told ANI that GST has been 5 per cent on electric vehicles, but for items like batteries, electronics charges it is 18 per cent.
“It would be great if the GST Council may rectify this inverted duty structure. We welcome whatever decisions are going to come in favour of the entire electric vehicle industry,” Gupta added.