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What it means for govt finances if petrol, diesel are included in GST

Tax on petroleum products is imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre. (Photo: Mint)Premium
Tax on petroleum products is imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre. (Photo: Mint)

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

With prices of petrol and diesel sky-rocketing, the clamour for bringing petroleum products under the Goods and Services Tax (GST) grows louder once again. The current tax structure on petroleum, oil and lubricants (POL) products has led to multiple taxes, making prices in India one of the highest in the world.

However, levying GST on POL products has been a bone of contention between the states and the Centre since GST was introduced in 2017. Each state has its own structure for taxing POL items, so the state governments are worried that they would lose their fiscal autonomy if these products become a part of the GST regime. Also, these products are among key revenue generators for states, which could be keeping them from showing the political will to agree the Centre on this matter. It is expected that at the upcoming GST Council meeting in March, this topic will be taken into consideration.

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The research arm of State Bank of India (SBI), has recommend a tax structure for petrol and diesel if GST has to be levied on it, to understand its impact on government's finances.

"Our base estimate is based on following assumptions: Crude price at $60/barrel, Rupee dollar exchange rate at 73, Transportation changes of 7.25 for diesel and 3.82 for petrol, Dealer commission of 2.53 for diesel and 3.67 for petrol, Cess of 30 for petrol and 20 for diesel, with equal division between States and Centre ( 15 for states and Centre each for petrol and likewise for diesel at 10)," said the report, dated 4 March. The GST tax slab has been assumed at 28%. For fiscal 2022, annual growth rate for petrol and diesel consumption has been assumed at 10% and 15%, respectively.

It should be noted that tax on petroleum products is imposed after taking into account the crude price, transportation charge, dealer commission and flat excise duty imposed by the Centre.

Using all these assumptions, the research house finds that the base price for petrol and diesel comes out to be 75 and 68 per litre, respectively. "At this base price, Centre accrues revenue loss of 1 lakh crore (or 0.5% of GDP) and states of 30,000 crore, given our estimates of the state revenue under the current prevailing value added tax (VAT) regime," the report added.

Of course, states which tax these items higher than 28%, are bound to lose some revenues if the shift to GST happens, but for the common man it brings down the burden of taxes by almost 10-30 depending on the product consumed and the state in which it is consumed, showed SBI's research. Moreover, it brings uniformity in the tax structure, which is the key purpose of GST.

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