Bringing petrol and diesel under the ambit of GST would help provide an immediate and big relief of about Rs 20 per litre to consumers reeling under sky-high prices.
The move, however, will wipe out more than half of tax revenue from the petroleum sector for states and the Centre, probably the reason why this reformist move is yet to get support in the GST Council meetings.
Financial Chronicle asked sectoral experts to quantify the benefit if petrol and diesel are brought under GST. Their estimates say retail price of petrol in Delhi will fall from the level of Rs 78.11 a litre at present to just about Rs 63 even if the GST Council approves the highest rate of 28 per cent in addition to 22 per cent compensation cess on the fuel. This is the highest GST rate for luxuries that is applicable on large automobiles or SUVs.
The retail price of petrol will be Rs 65 a litre in Delhi, even if the highest GST rate of 28 per cent and the ceiling rate of 25 per cent cess under the GST legislation is adopted. Even at this rate, retail price of petrol will be cheaper by close to 20 per cent of the current rates.
Any GST-cess combination lower than the above ones will result in retail prices falling substantially, by as much as Rs 20 a litre (see tables).
The fall in diesel price under GST would be marginally less, as tax on the fuel is slightly lower than petrol. But GST at a uniform rate on the two petroleum products will reduce the price differential between the two products at the retail level. This is because the base price of both petrol and diesel is almost the same in international markets.
But the inclusion of petrol and diesel under GST will substantially impact the government revenue. The hit will be more for the Centre that has gradually increased its share of taxes by effecting nine increases in excise duty on the two auto fuels between November 2014 and January 2016. It more than doubled its excise revenue from oil from Rs 99,184 crore in FY15 to Rs 2,42,691 crore in FY17 and is set to hit the same number in FY18.
According to sources, inclusion of petrol and diesel would also merge all other indirect taxes levied on the fuel at both central and state levels. The Centre’s share of taxes from the two products petroleum could fall by over Rs 1 lakh crore annually to just about Rs 1,30,000-Rs 1,40,000 crore.
Similarly, the hit on states revenue could be around Rs 50,000 crore annually. The hit will be more for states such as Maharashtra, Assam, Andhra Pradesh, Kerala, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Telengana that levy high VAT of over 30 per cent on petrol.
Moreover, under GST, Bihar and West Bengal would have remove additional surcharge of 30 per cent and 20 per cent respectively on the VAT levy.
“GST would remove a lot of complications that has crept into taxing auto fuels and prevent consumers from wide volatility in retail prices. Moreover, with the growth in consumption expected in India, the government’s revenue loss would also be made up in some time,” said an oil industry expert asking not to be named.
Along with, reducing the retail prices, GST will also allow oil marketing companies to reduce their overall tax burden that could allow them to further bring down the retail price of petrol and diesel.
“The oil companies are today not able to offset any of the taxes that they pay for refining petrol and diesel against the output liabilities which are excise duty and VAT. Companies like IOC pay GST on expenses incurred on maintenance of the refineries. The GST on the operational expenses is actually a cost for them. But they are unable to offset this against output liabilities. If the fuels are brought under GST, the overall operational cost for these companies could be lower by 8-9 per cent,” said Amit Sarkar, partner and head (indirect tax) at private consultancy BDO India.
The current spiral in auto fuel prices has forced the government to get into serious discussions among all stakeholders to find the best possible solution. But in the last 10 days or more no solution has emerged withy statements only being made about the lookout for lasting solution and adopting a holistic approach to the whole issue.
The retail price of petrol and diesel has moved up by over Rs 9 per litre in last six months. In fact, retail prices increased by close to Rs 4 per litre in the 16-day period between May 14 and May 29. Prices since then have fallen marginally by around 30 paisa as international oil price has also seen a decline. But experts said that oil price may start rising again and the government is best advised to find a solution that ends this uncertainty.