Should petroleum and liquor be out of GST?

Dec 04 2013, 03:07 IST
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SummaryExclusions will dilute GST. The Centre needs to formulate a roadmap which takes care of the revenue concerns of the states

Gujarat has consistently represented in the meetings of the Empowered Committee of State Finance Ministers that petroleum products should not be included in the Goods and Services Tax (GST) as their inclusion will drastically reduce the states’ revenue. Our view is that the states should retain the power to levy Sales Tax and Central Sales Tax (CST) on petroleum products.

In the revised Constitution (115th) Amendment Bill, 2013, the union government has proposed to define GST as “any tax on supply of goods or services or both,” leaving out those exemptions from GST that were suggested in the earlier draft—taxes on supply of petroleum crude, high speed diesel, motor spirit or petrol, natural gas, aviation turbine fuel and liquor.

The states, at present, have exclusive power to levy state excise duty on alcohol for human consumption. The Empowered Committee felt that if potable alcohol is deleted from Clause 12 (A), then the Centre will also get the power to levy GST. Therefore, the committee was of the view that liquor should be exempted from GST. Moreover, the committee felt that the Centre should firmly commit to the exemption of petroleum products from the GST regime till GST stabilises and the need for compensation goes away.

The power to levy sales tax and CST on petroleum products should be retained by the states. The revenue-neutral GST rate of states may be worked out based on this decision.

The Empowered Committee has maintained that all entry taxes should be subsumed into GST except the entry tax levied in lieu of Octroi, the proceeds of which go to local bodies. If such entry taxes are subsumed into GST, the states would incur substantial revenue loss. Hence, the committee broadly felt that entry taxes in lieu of Octroi should be exempted from GST.

If this, however, is subsumed under GST, then all the states must be permitted to levy any cess, surcharge, additional tax in lieu of Octroi, on behalf of local bodies, and these should be kept out of the ambit of GST.

The Standing Committee of Parliament had recommended that since the destination-based interstate GST (IGST) model favours the consumer states more than the producer states, the revenue concerns of the latter need to be factored in and duly addressed. Thus, GST should not act as a dampener or as a disincentive for states with a strong manufacturing base.

The states are incurring huge revenue loss under the

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