WHY DO PETROL AND DIESEL PRICES NOT FALL UNDER GST?

WHY DO PETROL AND DIESEL PRICES NOT FALL UNDER GST?

 

The GST (Goods and Services Tax) is an indirect tax (or sales tax) on the production of goods and services used in India. It is a systematic, multi-stage, destination-based tax: comprehensive since, except for a few state taxes, it has incorporated almost all the indirect taxes. The GST, multi-stage as it is, is levied at any phase of the manufacturing process, but is intended to be refunded to all parties other than the final customer and as a destination-based tax at the different stages of production,it is obtained, like previous taxes, from the point of consumption and not from the point of origin.

 

Goods and services are divided into 5 tax collecting slabs – 0 percent, 5 percent, 12 percent, 18 percent and 28 percent. That being said, as per the former tax regime, petroleum products, alcoholic beverages, and electricity are not levied under GST and are taxed by the individual state governments instead.

 

A hole in the pocket of people with no signs of recovery is burning spiraling oil and diesel prices. With this the controversy surrounding the reduction of import duty and the incorporation of car fuel under the GST erupted again with India Inc urging the cabinet to act immediately. In the near future, petrol and diesel would not be subject to the Goods and Services Tax (GST) since neither the central government nor any of the states are in favor of severe revenue loss concerns, a source familiar with the situation said today. Five petroleum products (petrol, diesel, crude oil, natural gas and aviation turbine fuel) are kept out of the GST scope when the “one nation, one tax” regime was introduced on 1 July 2017.

 

Although there have been discussions in the sector and by some policymakers, including Dharmendra Pradhan and Nitin Gadkari, to negotiate with crude price fluctuations for GST on petrol and diesel at the latest, there are no current plans on the anvil to do so, said the individual quoted above, speaking on condition of anonymity.

 

The main disadvantage to the Indian Public for this is actually an advantage to governing bodies. Throughout India this will not be practical for governors with such a high GST on diesel. Since fuel would cost the same around the country until it is subsumed into GST. The consequence is that there will be a significant increase in rates for all states with lower sales taxes at present, which will be electoral suicide for the leading parties. It is also doubtful that states will consent to reduce their state fuel levies, as most of them have been fighting the revenue deficit since the new tax regime was introduced.

 

While it seems to be a no-brainer to allow state governments to impose a local tax over and above GST, it would only generate a further difference in petroleum product prices between states. An individual traveling from Bengaluru to Chennai would prefer to tank up petrol in Karnataka in the current tax structure because it is nearly 3 to a liter cheaper. Just the reality that there is such a discrepancy vitiates the taxation tradition of equity suggested by Adam Smith.

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