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The recent surge in petrol and diesel prices is burning a hole in the common man’s pocket. For India Inc. as well, the spike in freight costs is threatening operating margins. In that context, Friday’s GST (goods and services tax) Council meeting in Lucknow is crucial.

A widely-held expectation is that the council will likely discuss bringing auto fuels under its ambit. Such a move would result in a significant drop in consumer prices of auto fuels.

However, tax experts say experience with past GST meetings shows that taking a concrete decision on this controversial matter has been easier said than done.

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“We do not expect any meaningful decision related to this matter at Friday’s meeting. We may have some recommendations being made or a new committee being formed; nothing beyond that," a tax expert with a foreign accounting firm said, requesting anonymity.

“This is a politically sensitive issue which will have steep repercussions on the states’ fiscal authority and revenue generation if GST has to be levied on them. These items are key revenue generators for the states, so making them come to terms with the Centre is a tall task," the person mentioned before said further.

Levying GST on petroleum products has been a bone of contention between the states and the central government since GST was introduced in 2017. This is because each state has its own tax structure for taxing these products. Due to this, the current tax structure on petroleum products has led to multiple taxes, making prices in India among the highest worldwide. Currently, petrol and diesel are sold at around 101 per litre and around 88 per litre, respectively, in Delhi.

Tax on petroleum products is imposed after taking into account the crude price, transportation charge, dealer commission and flat excise duty imposed by the central government.

“Shifting of petroleum fuels and natural gas, which is currently under VAT (value-added tax), to the GST regime could take time and several rounds of discussions to arrive at a revenue-neutral GST rate, which could entail rates above 28% for petrol and diesel (considering the high excise and VAT rates) and 18%+ for gas (given the VAT rates of 5-25% across states)," Nirmal Bang Securities Ltd said in a 16 September report.

In simple terms, states where the tax rate on petroleum products is more than 28%, the highest GST slab, are bound to lose some revenues.

If a new tax bracket is to be introduced only for taxing petroleum products, then that would defeat the key GST purpose of uniformity in taxes, the tax experts said.

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