INDUCTINGPETROLEUM PRODUCTS INTO GST: AN ONLY SOLUTION TO RISING PRICESDEEPAK KUMAR ADHANAResearch Scholar, Institute of Mgt.Studies & Research, M.D. University, RohtakDR.
NEELAM GULATIProfessor, DAV Institute ofManagement, Faridabad ABSTRACT:Introduction of GST onJuly 1st, 2017 was the biggest tax reform in India. GSTis applicable on almost all goods and services that one can think of however sofar petroleum products i.e.
petrol, diesel, jet fuel and natural gas have notbeen brought under the ambit of GST so as to maintain the revenue that theStates earn from these petroleum products. After the rollout ofGST, although petroleum products were not covered under the Goods and ServicesTax, however, a significant change that happened was that the prices of petroland diesel started being revised or changed daily as opposed to the previoussystem of fortnightly revision of prices. The Government’s motive behind thismove was to give the consumer the benefit of any reduction in prices at theInternational level and also to ease out the effect of any sharp rise in pricesof these products, on the consumer. But there has been rise in petrol anddiesel price. As a result of this rise there has been strong opposition frompublic. Therefore the petroleum products must soon be brought under the purviewof 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 petroleumproducts in the ambit of GSTThe present paperhighlights the scenario of existing tax structure on petrol and diesel.
It alsoexhibits the petroleum products price comparison with other countries. It alsomentions the revenue generated through excise duty and VAT on petro products inlast four years. The paper, in the endalso depicts the projected petrol and diesel price under GST ambit. KEYWORDS: Excise Duty, GST, Revenue, VAT I. INTRODUCTION:TheGoods and Services tax (GST) was introduced in India from July 1, 2017 whichsubsumed all indirect taxes levied by the central and state governments.However, petroleum products such as petrol, diesel, jet fuel and natural gaswere kept out of the purview of GST in order to preserve the revenueacquired by the states.
Theonly change that had happened was daily revision of petrol and diesel pricesinstead of every fortnight. As per government, this was done to immediatelypass on the benefit of any reduction in international oil prices to consumersand avoids sharp spikes by spreading them in small doses. But there has been aspike of Rs 7.3 per litre in petrol and diesel price since GST rollout in July.The petrol prices haveincreased by Rs 7.
32 to reach Rs 70.38 a litre in Delhi, the highest sinceAugust 2014, and the diesel rates have risen by Rs 5.36 to Rs 58.72. OilMinister Dharmendra Pradhan on September 13, 2017, ruled out any tax cut inpetrol and diesel prices to soften the blow of relentless rise in prices sinceJuly 3, citing the government need to finance huge infrastructure and socialprojects has to be balanced with consumer needs. He also said that, “It ishigh time GST Council should consider bringing the petroleum products in the ambitof GST.”There is no legal hurdleto including petroleum products under GST as the GST Council hasalready listed them under the new tax regime, but levying of tax has beendeferred. It is mentioned in the Central Goods and Services Tax act, 2017 ChapterIII Levy and Collection of Tax that, “9.
(2) The central tax on the supplyof petroleum crude, high speed diesel, motor spirit (commonly known as petrol),and natural gas & aviation turbine fuel shall be levied with effect fromsuch date as may be notified by the Government on the recommendations of theCouncil.” Thus, It is believed thatif petroleum products are brought under the purview of GST then the prices ofpetrol 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 theresearch methodology are as follows:OBJECTIVES OF STUDY:The study has been geared to achieve the followingobjectives;1. To highlights the scenario of existing tax structure on petrol anddiesel in India2. To exhibit therevenue earned through Excise Duty & VAT/ Sales Tax onpetro products 3.
To depicts the projected petrol and dieselprices under various GST SlabsRESEARCH METHODOLOGY:Type of Research: Quantitative andAnalytical ResearchData: Data from 2013-14 to 2016-17Data Collection Method: This study has beencarried out with the help of secondary data only, all the data has beencollected from the various sources such as websites & reports and compiledas said by the need of the study. Sources of Data Collection: The study is based on thepublished data. For the purpose of present study, the data wasextracted from the various issues of Secretariat of IndustrialAssistance (SIA) Newsletter, journals, newspapers and websites particularly fromthe Department of Industrial Policy and Promotion (DIPP), Ministry ofCommerce 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 oilcompanies to petrol pumps at a little over Rs 30 per litre. It is theimposition of Central excise duty and state government levies such as VAT thatresult in raising the price of petrol to over Rs 70 per litre and that ofdiesel to Rs 58.
70 a litre.Exciseduty on petrol and dieselTheexcise duty on unbranded diesel was Rs 3.56 per litre on 1st April, 2014just before the Narendra Modi Government came to power. The excise duty onunbranded petrol was Rs 9.48 per litre on the same date. Since then, it hasbeen revised 11 times during the last 3 years.
From Rs 3.56 per litre, theexcise duty on diesel increased to Rs 17.33 per litre, an increase of over380% in 3 years. In the case of petrol, it increased from Rs 9.
48 per litre to21.48 per litre, an increase of over 120% in 3 years. On four differentoccasions, 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 occasionsin the case of petrol.Theduty hike resulted in government’s excise mop-up more than doubling to Rs242,691 crore in 2016-17 from Rs 99,184 crore in 2014-15. The windfall from theexcise duty hikes helped the government bridge its budgetary deficit.Currentfuel pricesWhilepetrol prices have increased by Rs 7.32 to reach Rs 70.38 a litre in Delhi, thehighest since August 2014, diesel rates have risen by Rs 5.
36 to Rs 58.72. InMumbai, a litre of petrol costs Rs 79.48, while a litre of diesel is worth Rs62.37 (prices as per September 12). Figure1: Pricebreak up of petrol & diesel in Delhi as on 12 September 2017Excise duty on petrol was Rs 9.
48 per litre in April2014, which after several rounds of hikes between 2015 and 2016, has now shotup to Rs 21.48. Similarly, the excise duty on diesel was Rs 3.56 per litre inApril 2014, which after the hikes, has risen to Rs 17.33. Figure2: Excise Duty on Petrol & Diesel The increase in excise duty has helped the Centrerealise over Rs 1 lakh crore. Petroleum products have been left outside theambit of GST as these form a major source of revenue for the cash-strapped stateswho have refused to let go of the lucrative source despite the Centre arguingin favour of a uniform all-India tax for the two fuels.The variation in prices of petrol and diesel betweenstates is due to the different rates of state levies.
Another reason why statesdo not want petroleum products to shift under GST is that the levies on petroland diesel are collected for them by the public sector oil companies and passedon directly to the states as a result of which there is no leakage due to corruptionas is the case with other state taxes.IV. RETAIL PRICES IN INDIA ANDSELECTED COUNTRIES AS ON SEPTEMBER 13, 2017 (RS/LITRE): Figure3: RetailPetro prices in India and select countries as on September 13, 2017 (Rs/litre):Taxes,the main culpritHowever, the reason for India’s high fuel prices isquite clear. Taxes constitute 45%-52% of the retail price of auto fuels, farhigher than what would be the incidence if petrol and diesel are brought underintroduced Goods and Services Tax (GST) and the highest tax rate of 28% islevied.International oil prices started their descent inJuly 2014. The Narendra Modi government, which assumed office in the last weekof May that year, took advantage of the crash in oil prices to boost itsrevenue and bridge fiscal deficit instead of passing on the benefits toconsumers 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 onpetrol & diesel has more than tripled from 2013-14 to 2016-17. From Rs77982 crore in 2013-14, the excise duty collection on petrol & diesel morethan tripled to Rs 242691 crore in 2016-17. Annual revenues from exciseduties grew at 27% in 2014-15, 80% in 2015-16 and 36% in 2016-17, rising from0.
7% of GDP in 2013-14 to 1.6% of GDP in 2016-17. The VAT/sales tax collection on petrol & dieselincreased only marginally in the states. From Rs 129045 crore in 2013-14, itincreased to Rs 166378 crore in 2016-17. VAT/Sales tax revenues onpetro-products have remained at 1.1% of GDP from 2013-14 to 2016-17.
Figure4: Revenue through Excise Duty on Petrol & Diesel Figure5: Revenue through VAT/Sales Tax on Petrol & DieselVI. SOME OF THE FACTSYOU MUST KNOW: Figure6: Someof Facts related to petrol and diesel priceTHEOILY TRUTHS: India does nothave large reserve of crude oil in terms of potential or proven reserves India has nooption but to import 82% of its total requirement of crude oil from overseas Petrol pricesin India much lower than the UK, Chile, Brazil, Japan and Singapore India has topay an additional cess called Asian Premium India todayhas the most vibrant renewable energy roll out, aimed at reducing ourdependence on imported fuels In total consumptionof petroleum products in India, Petrol contributes only 12% while Dieselcontributes 39%VII.WHAT HAPPENS IF PETROL AND DIESEL PRICES COME UNDER GST AMBIT?Incase, GST is applied on petro products, it will stand to subsume both VAT andexcise duty and will be replaced by one of the four broad tax slabs of the newtax regime. Assuming that fuel is charged even under the highest tax slab of 28per cent, the prices of petroleum products will fall sharply.Assumingthat the government brings petrol prices under 12 percent GST bracket, thenpetrol price could come down to Rs 38.01 in Delhi while at 18 percent, petrolprice will come down at 40.05 a litre. If the government pushes petrol tohighest GST tax bracket of 28 percent, then it will cost Rs 43.
44 per litre inthe national capital.Similarly,if government brings diesel prices under 12 percent GST bracket, then it willbe sold at Rs 36.65 in Delhi. At 18 percent GST, diesel will cost Rs 38.
61while at 28 percent GST, it will cost Rs 41.88.An analysisby a data website Factly.in shows what we would actually be paying, if fuelprices come under GST. The data projects the price of 1 litre of petrol anddiesel at various GST rates, including the highest of 28% and a compensationcess 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 Table2: Projected petrol price under various GST slabs*Price as of 13th September 2017 applicable at IOCL bunks acrossthe countryDataSource: Factly.inVIII.IS GST THE SOLUTION THEN?Whileit 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 stateexchequer will only be poorer.
Infact, the government’s rationale behind not including fuel in GST was toinsulate states from loss of revenue. The state of Delhi earns 27 per cent VATfrom sale of a litre of petrol. On top of that, the states also receive 42 percent of the Excise Duty charged by the centre, according to Oil MinisterDharmendra Pradhan.
Thus, the state earns Rs 23.98 from sale of each litre. Incase, the 28 per cent GST is applied, the states will be entitled to 14 percent of it in the form of SGST (State goods and Services Tax) which will amountto 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 financeministry have yet not responded to the petroleum ministry’s plea of bringingpetrol and diesel and under the GST ambit. If and when the GST Council agreesto impose GST on petro products, it seems unlikely that any of the existing taxslabs will be able to suffice the revenue requirements. In such a case, thecouncil may opt to levy an additional cess on fuel, as in the case of largesized cars and SUVs (Sports Utility Vehicles).IX.
States want Centre to compensate loss if petro products brought under GSTStates have refused the central government’s appealto 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 globalstandards.BJP ruled states are of the opinion that the GST counciltook a conscious decision to keep petroleum products outside the GST ambit. State government officials have also opposedthe Centre’s move to include petroleum products under GST as lower tax wouldmean huge revenue loss to the state.Officials of other opposition-ruled states such asWest Bengal, Kerala, Punjab and Karnataka have also opposed Central Government’sproposal saying it will not be acceptable until the Centre “adequately”compensates for the revenue loss.However the Central government had expressed itsinability to compensate such a huge amount during meetings of the empoweredcommittee of the finance ministers on GST.
The rate of VAT on petrol and dieselin different states with income are as follows: (Central Tax) Petrol:21.48 per litre / Diesel: 17.33 per litre as on 20 September 2017Data sourced from Petroleum Ministry and StateGovernment’s budget documentsX.CONCLUSION:According to the latest news under GST (13September 2017), The Union Minister for Petroleum and Natural Gas plans tobring petroleum products under the Goods and Services Tax (GST) regime as itcould be beneficial for the national economy.
But bringing petroleum products under the GSTinvolves politics. Under the GST Act, the decision to bring petroleum productsunder the new taxation regime can only be taken by the GST Council which hasheavy representation from states. States have refused the central government’s appeal to bring petroleumproducts under Goods and Services Tax (GST). Petrol and diesel are already part of the GST regime in principle andhence, there is no need to carry any amendment in the GST legislation. Theissue is when to start the implementation of the GST on petrol or diesel, whichneeds a wider discussion in the GST Council.
For four reasons, the inclusion of Petrol and other petroleumproducts 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 petroleumproducts are included at an early date so that GST can be implemented in itswider perspective. The real intention of GST is to minimise the cascadingeffect created by multiple taxes in the existing system and if exceptions are carved out then it willdrastically 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.htmlhttp://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/ Newspapers:The Hindu Economic TimesTimes of India Hindustan Times