INDUCTING give the consumer the benefit of any

INDUCTING
PETROLEUM PRODUCTS INTO GST: AN ONLY SOLUTION TO RISING PRICES

DEEPAK KUMAR ADHANA

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Research Scholar, Institute of Mgt.
Studies & Research, M.D. University, Rohtak

DR. NEELAM GULATI

Professor, DAV Institute of
Management, Faridabad

ABSTRACT:

Introduction of GST on
July 1st, 2017 was the biggest tax reform in India. GST
is applicable on almost all goods and services that one can think of however so
far petroleum products i.e. petrol, diesel, jet fuel and natural gas have not
been brought under the ambit of GST so as to maintain the revenue that the
States earn from these petroleum products. 

After the rollout of
GST, although petroleum products were not covered under the Goods and Services
Tax, however, a significant change that happened was that the prices of petrol
and diesel started being revised or changed daily as opposed to the previous
system of fortnightly revision of prices. The Government’s motive behind this
move was to give the consumer the benefit of any reduction in prices at the
International level and also to ease out the effect of any sharp rise in prices
of these products, on the consumer. But there has been rise in petrol and
diesel price. As a result of this rise there has been strong opposition from
public. Therefore the petroleum products must soon be brought under the purview
of GST as it is the only way to have stable and rational fuel prices in India.
Recently petroleum ministry has requested GST Council to consider the petroleum
products in the ambit of GST

The present paper
highlights the scenario of existing tax structure on petrol and diesel. It also
exhibits the petroleum products price comparison with other countries. It also
mentions the revenue generated through excise duty and VAT on petro products in
last four years.  The paper, in the end
also depicts the projected petrol and diesel price under GST ambit.

KEY
WORDS: Excise Duty, GST, Revenue, VAT

I. INTRODUCTION:

The
Goods and Services tax (GST) was introduced in India from July 1, 2017 which
subsumed all indirect taxes levied by the central and state governments.
However, petroleum products such as petrol, diesel, jet fuel and natural gas
were kept out of the purview of GST in order to preserve the revenue
acquired by the states.

The
only change that had happened was daily revision of petrol and diesel prices
instead of every fortnight. As per government, this was done to immediately
pass on the benefit of any reduction in international oil prices to consumers
and avoids sharp spikes by spreading them in small doses. But there has been a
spike of Rs 7.3 per litre in petrol and diesel price since GST rollout in July.

The petrol prices have
increased by Rs 7.32 to reach Rs 70.38 a litre in Delhi, the highest since
August 2014, and the diesel rates have risen by Rs 5.36 to Rs 58.72. Oil
Minister Dharmendra Pradhan on September 13, 2017, ruled out any tax cut in
petrol and diesel prices to soften the blow of relentless rise in prices since
July 3, citing the government need to finance huge infrastructure and social
projects has to be balanced with consumer needs. He also said that, “It is
high time GST Council should consider bringing the petroleum products in the ambit
of GST.”

There is no legal hurdle
to including petroleum products under GST as the GST Council has
already listed them under the new tax regime, but levying of tax has been
deferred. It is mentioned in the Central Goods and Services Tax act, 2017 Chapter
III Levy and Collection of Tax that, “9. (2) The central tax on the supply
of petroleum crude, high speed diesel, motor spirit (commonly known as petrol),
and natural gas & aviation turbine fuel shall be levied with effect from
such date as may be notified by the Government on the recommendations of the
Council.”

Thus, It is believed that
if petroleum products are brought under the purview of GST then the prices of
petrol as well as diesel would be the same all over India due to One Nation –
One Tax i.e. it would become uniform across the country.

 

 

II. OBJECTIVES AND METHODOLOGY:

The objectives and the
research methodology are as follows:

OBJECTIVES OF STUDY:

The study has been geared to achieve the following
objectives;

1.     
To highlights the scenario of existing tax structure on petrol and
diesel in India

2.     
To exhibit the
revenue earned  through Excise Duty & VAT/ Sales Tax on
petro products

3.     
To depicts the projected petrol and diesel
prices under various GST Slabs

RESEARCH METHODOLOGY:

Type of Research: Quantitative and
Analytical Research

Data: Data from 2013-14 to 2016-17

Data Collection Method: This study has been
carried out with the help of secondary data only, all the data has been
collected from the various sources such as websites & reports and compiled
as said by the need of the study.

Sources of Data Collection: The study is based on the
published data. For the purpose of present study, the data was
extracted from the various issues of Secretariat of Industrial
Assistance (SIA) Newsletter, journals, newspapers and websites particularly from
the Department of Industrial Policy and Promotion (DIPP), Ministry of
Commerce and Industry and Reserve Bank of India.

III. THE EXISTING TAX STRUCTURE: 

Currently,
consumers pay three major taxes on petrol. These taxes include Excise Duty
(charged by the centre), VAT or Value Added Tax (charged by respective states)
and the dealers’ commission. Both petrol and diesel are supplied by the oil
companies to petrol pumps at a little over Rs 30 per litre. It is the
imposition of Central excise duty and state government levies such as VAT that
result in raising the price of petrol to over Rs 70 per litre and that of
diesel to Rs 58.70 a litre.

Excise
duty on petrol and diesel

The
excise duty on unbranded diesel was Rs 3.56 per litre on 1st April, 2014
just before the Narendra Modi Government came to power. The excise duty on
unbranded petrol was Rs 9.48 per litre on the same date. Since then, it has
been revised 11 times during the last 3 years. From Rs 3.56 per litre, the
excise duty on diesel increased to Rs 17.33 per litre, an increase of over
380% in 3 years. In the case of petrol, it increased from Rs 9.48 per litre to
21.48 per litre, an increase of over 120% in 3 years. On four different
occasions, the excise duty on diesel was increased by Rs 2 or more per litre,
while it was increased by Rs 2 or more per litre on three different occasions
in the case of petrol.

The
duty hike resulted in government’s excise mop-up more than doubling to Rs
242,691 crore in 2016-17 from Rs 99,184 crore in 2014-15. The windfall from the
excise duty hikes helped the government bridge its budgetary deficit.

Current
fuel prices

While
petrol prices have increased by Rs 7.32 to reach Rs 70.38 a litre in Delhi, the
highest since August 2014, diesel rates have risen by Rs 5.36 to Rs 58.72. In
Mumbai, a litre of petrol costs Rs 79.48, while a litre of diesel is worth Rs
62.37 (prices as per September 12).

Figure
1: Price
break up of petrol & diesel in Delhi as on 12 September 2017

Excise duty on petrol was Rs 9.48 per litre in April
2014, which after several rounds of hikes between 2015 and 2016, has now shot
up to Rs 21.48. Similarly, the excise duty on diesel was Rs 3.56 per litre in
April 2014, which after the hikes, has risen to Rs 17.33.

Figure
2: Excise Duty on Petrol & Diesel

The increase in excise duty has helped the Centre
realise over Rs 1 lakh crore. Petroleum products have been left outside the
ambit of GST as these form a major source of revenue for the cash-strapped states
who have refused to let go of the lucrative source despite the Centre arguing
in favour of a uniform all-India tax for the two fuels.

The variation in prices of petrol and diesel between
states is due to the different rates of state levies. Another reason why states
do not want petroleum products to shift under GST is that the levies on petrol
and diesel are collected for them by the public sector oil companies and passed
on directly to the states as a result of which there is no leakage due to corruption
as is the case with other state taxes.

IV. RETAIL PRICES IN INDIA AND
SELECTED COUNTRIES AS ON SEPTEMBER 13, 2017 (RS/LITRE):

Figure
3: Retail
Petro prices in India and select countries as on September 13, 2017 (Rs/litre):

Taxes,
the main culprit

However, the reason for India’s high fuel prices is
quite clear. Taxes constitute 45%-52% of the retail price of auto fuels, far
higher than what would be the incidence if petrol and diesel are brought under
introduced Goods and Services Tax (GST) and the highest tax rate of 28% is
levied.

International oil prices started their descent in
July 2014. The Narendra Modi government, which assumed office in the last week
of May that year, took advantage of the crash in oil prices to boost its
revenue and bridge fiscal deficit instead of passing on the benefits to
consumers as the logic of market-determined pricing would dictate.

V.
REVENUE THROUGH EXCISE DUTY & VAT/ SALES TAX ON PETRO PRODUCTS:

Central government’s revenue through excise duty on
petrol & diesel has more than tripled from 2013-14 to 2016-17. From Rs
77982 crore in 2013-14, the excise duty collection on petrol & diesel more
than tripled to Rs 242691 crore in 2016-17.  Annual revenues from excise
duties grew at 27% in 2014-15, 80% in 2015-16 and 36% in 2016-17, rising from
0.7% of GDP in 2013-14 to 1.6% of GDP in 2016-17.

The VAT/sales tax collection on petrol & diesel
increased only marginally in the states. From Rs 129045 crore in 2013-14, it
increased to Rs 166378 crore in 2016-17. VAT/Sales tax revenues on
petro-products have remained at 1.1% of GDP from 2013-14 to 2016-17.

Figure
4: Revenue through Excise Duty on Petrol & Diesel

Figure
5: Revenue through VAT/Sales Tax on Petrol & Diesel

VI. SOME OF THE FACTS
YOU MUST KNOW:

 

Figure
6: Some
of Facts related to petrol and diesel price

THE
OILY TRUTHS:

     
India does not
have large reserve of crude oil in terms of potential or proven reserves

     
India has no
option but to import 82% of its total requirement of crude oil from overseas

     
Petrol prices
in India much lower than the UK, Chile, Brazil, Japan and Singapore

     
India has to
pay an additional cess called Asian Premium

     
India today
has the most vibrant renewable energy roll out, aimed at reducing our
dependence on imported fuels

     
In total consumption
of petroleum products in India, Petrol contributes only 12% while Diesel
contributes 39%

VII.
WHAT HAPPENS IF PETROL AND DIESEL PRICES COME UNDER GST AMBIT?

In
case, GST is applied on petro products, it will stand to subsume both VAT and
excise duty and will be replaced by one of the four broad tax slabs of the new
tax regime. Assuming that fuel is charged even under the highest tax slab of 28
per cent, the prices of petroleum products will fall sharply.

Assuming
that the government brings petrol prices under 12 percent GST bracket, then
petrol price could come down to Rs 38.01 in Delhi while at 18 percent, petrol
price will come down at 40.05 a litre. If the government pushes petrol to
highest GST tax bracket of 28 percent, then it will cost Rs 43.44 per litre in
the national capital.

Similarly,
if government brings diesel prices under 12 percent GST bracket, then it will
be sold at Rs 36.65 in Delhi. At 18 percent GST, diesel will cost Rs 38.61
while at 28 percent GST, it will cost Rs 41.88.

An analysis
by a data website Factly.in shows what we would actually be paying, if fuel
prices come under GST. The data projects the price of 1 litre of petrol and
diesel at various GST rates, including the highest of 28% and a compensation
cess of 22% applicable to SUVs in capital cities of various states & UTs.
Below are the tables.

Projected
Petrol Price with GST

Capital City

Actual Price @IOCL Bunks*

Projected Price

 

@ 12% GST

@ 18% GST

@ 28% GST

@28% GST +
22% Compensation Cess as on SUVs

 

Bangalore

71.47

38.01

40.05

43.44

50.91

Chennai

72.95

38.01

40.05

43.44

50.91

Delhi

70.38

38.01

40.05

43.44

50.91

Hyderabad

74.52

38.01

40.05

43.44

50.91

Kolkata

73.12

38.01

40.05

43.44

50.91

Mumbai

79.48

38.01

40.05

43.44

50.91

Table
1: Projected petrol price under various GST slabs
 
Projected Diesel Price
with GST

Capital City

Actual Price @IOCL
Bunks* Projected Price @18% GST

Projected Price

 

@ 12% GST

@ 18% GST

@ 28% GST

@28% GST + 22% Compensation Cess as on
SUVs

 

Bangalore

58.82

36.65

38.61

41.88

49.08

Chennai

61.84

36.65

38.61

41.88

49.08

Delhi

58.72

36.65

38.61

41.88

49.08

Kolkata

61.37

36.65

38.61

41.88

49.08

Mumbai

62.37

36.65

38.61

41.88

49.08

Table
2: Projected petrol price under various GST slabs

*Price as of 13th September 2017 applicable at IOCL bunks across
the country

Data
Source: Factly.in

VIII.
IS GST THE SOLUTION THEN?

While
it may come across the simplest solution to tackle rising fuel prices,
inducting petroleum products into GST does not really augur for good economics.
As explained, such a move will take a major hit on revenues and the state
exchequer will only be poorer.

In
fact, the government’s rationale behind not including fuel in GST was to
insulate states from loss of revenue. The state of Delhi earns 27 per cent VAT
from sale of a litre of petrol. On top of that, the states also receive 42 per
cent of the Excise Duty charged by the centre, according to Oil Minister
Dharmendra Pradhan. Thus, the state earns Rs 23.98 from sale of each litre. In
case, the 28 per cent GST is applied, the states will be entitled to 14 per
cent of it in the form of SGST (State goods and Services Tax) which will amount
to Rs 4.29, thus causing a loss of Rs 19.69 per litre to the state exchequer.

THE WAY FORWARD:

The GST Council and the finance
ministry have yet not responded to the petroleum ministry’s plea of bringing
petrol and diesel and under the GST ambit. If and when the GST Council agrees
to impose GST on petro products, it seems unlikely that any of the existing tax
slabs will be able to suffice the revenue requirements. In such a case, the
council may opt to levy an additional cess on fuel, as in the case of large
sized cars and SUVs (Sports Utility Vehicles).

IX.
States want Centre to compensate loss if petro products brought under GST

States have refused the central government’s appeal
to bring petroleum products under the ambit of Goods and Services Tax (GST)
even as prices of petrol and diesel continue to skyrocket in contrast to global
standards.

BJP ruled states are of the opinion that the GST council
took a conscious decision to keep petroleum products outside the GST ambit.  State government officials have also opposed
the Centre’s move to include petroleum products under GST as lower tax would
mean huge revenue loss to the state.

Officials of other opposition-ruled states such as
West Bengal, Kerala, Punjab and Karnataka have also opposed Central Government’s
proposal saying it will not be acceptable until the Centre “adequately”
compensates for the revenue loss.

However the Central government had expressed its
inability to compensate such a huge amount during meetings of the empowered
committee of the finance ministers on GST. The rate of VAT on petrol and diesel
in different states with income are as follows:

(Central Tax) Petrol:
21.48 per litre / Diesel: 17.33 per litre as on 20 September 2017

Data sourced from Petroleum Ministry and State
Government’s budget documents

X.
CONCLUSION:

According to the latest news under GST (13
September 2017), The Union Minister for Petroleum and Natural Gas plans to
bring petroleum products under the Goods and Services Tax (GST) regime as it
could be beneficial for the national economy.

But bringing petroleum products under the GST
involves politics. Under the GST Act, the decision to bring petroleum products
under the new taxation regime can only be taken by the GST Council which has
heavy representation from states. States have refused the central government’s appeal to bring petroleum
products under Goods and Services Tax (GST). Petrol and diesel are already part of the GST regime in principle and
hence, there is no need to carry any amendment in the GST legislation. The
issue is when to start the implementation of the GST on petrol or diesel, which
needs a wider discussion in the GST Council.

For four reasons, the inclusion of Petrol and other petroleum
products in GST is must:

Uniform taxation and abolition of other
indirect taxation
To check inflation which will be there after implementation of
GST in India
To complete the chain and extend real benefit
of GST
To boost the GDP by 2%

Let’s hope that Petrol and other petroleum
products are included at an early date so that GST can be implemented in its
wider perspective. The real intention of GST is to minimise the cascading
effect created by multiple taxes in the existing system and if exceptions are carved out then it will
drastically affect the true spirit of GST reforms cum regime in India.

 

 

 

 

REFERENCES:

Websites:

http://ppac.org.in/

http://petroleum.nic.in/

https://india.gov.in/website-ministry-petroleum-and-natural-gas

https://factly.in/  

http://www.hindustantimes.com/india-news/states-wants-centre-to-compensate-for-revenue-loss-if-petroleum-products-brought-under-gst/story-NBpE9TkMBBj0nzXf16a3wJ.html

http://indiatoday.intoday.in/story/petrol-prices-diesel-prices-under-gst-arun-jaitley/1/1048063.html

http://zeenews.india.com/personal-finance/petrol-under-gst-heres-how-it-would-benefit-consumers-2042655.html

http://www.businesstoday.in/current/economy-politics/petrol-diesel-can-be-brought-under-gst-to-reduce-prices-heres-why-govt-doesnt/story/260558.html

http://timesofindia.indiatimes.com/business/india-business/petrol-diesel-under-gst-how-does-it-work-out/articleshow/60728873.cms

https://www.thequint.com/news/business/dharmendra-pradhan-on-petrol-diesel-prices

https://thewire.in/173558/petrol-diesel-soaring-prices-taxes/

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