New Delhi: The Centre on Monday said it is in favour of bringing petroleum products under the purview of the proposed goods and services tax (GST), but state governments need to be brought on board.
“In principle, petroleum products should come under the ambit of the proposed GST,” petroleum minister Dharmendra Pradhan said in the Lok Sabha while replying to a question.
As things stand now, petroleum products have been kept out of the GST till states agree to their inclusion. The GST Council, which will come into existence when Constitution amendment for the new law is passed, will take a decision on inclusion of petroleum products after a year or two. Finance minister Arun Jaitley had stated this on many occasions in the past.
Strong opposition from states stem from the fact that it is a big source of indirect tax for them and they don’t want to lose their autonomy to levy it.
Pradhan said the Centre and states together tax petroleum products at 52 per cent. Of which, around 32 per cent is collected by the Centre and the rest by states.
“State governments are free to fix the amount of tax they want to levy on petroleum products as every state has its own aspirations and development projects which they carry out through the revenue generated from sale of petroleum products,” the minister said.
“Both states and the Centre put inclusion of petroleum products in goods and services tax on hold due to various issues that it would have thrown up. They instead decided to wait for one or two years to enable the whole GST system to settle down,” partner at Grant Thornton India Amit Kumar Sarkar said.
The key reason for keeping petroleum products out of GST is the revenue loss it could lead to and ambiguity on laws on excise tax credit if they are brought under the new tax law. Under the existing laws, the industry is not allowed input tax credit on use of fossil fuels. In GST, however, this credit will have to be made available as for other products.
No one has an idea of the loss the credit on input tax would cause once petroleum products are part of GST. The government has chosen wisely to wait for sometime to see how the new tax regime works and what it tells about the revenue loss from input tax credit on fossil fuels.
“Keeping petroleum products under GST is desirable to ensure uniformity in taxation that new tax structure intends to bring in. If rates keep varying at regular intervals, the indirect tax reform would remain incomplete,” said Debasish Mishra, senior director, Deloitte in India.
Sarkar said by agreeing to bringing petroleum products under GST, state and central governments would have also lost the flexibility to control their prices through adjustment of taxes. “If these products are a part of GST, for every change in tax rates they would have to go to GST council,” he said.
Through prices of petroleum products have been decontrolled, government still determines their actual selling prices through raising or cutting taxes.
Apart from petroleum, another highly taxed product, potable alcohol, is also out of GST ambit.