Whopping 85% tax rate on petrol if it comes under GST, but govt must do it anyway

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Updated: March 26, 2019 6:31:50 PM

Although the move has not been made yet due to lack of consensus between centre and states on revenue sharing, some experts feel the issue should we resolved soon as it may benefit both industry and consumers.

Petrol and diesel prices have come under stress once again with Donald Trump imposing sanctions on Venezuela and Iran. This has become a serious concern for consumers in India as the country imports 80 per cent of it crude oil requirements.

However, there may be some respite for consumers from high fuel prices if the government decides to bring petrol and diesel under GST, even as it means that an entirely new tax structure might be needed with as much as 85% GST rate.

The issue of inclusion of petrol and diesel under the Goods and Services Tax (GST) has been in the public domain since even before the implementation of the GST. Although the move has not been made yet due to lack of consensus between centre and states on revenue sharing, some experts feel the issue should we resolved soon as it may benefit both industry and consumers.

There is a need to bring petrol and diesel under the GST in order to enable oil companies to benefit from the input tax credit, which could be consequently passed on to the consumers as reduced prices, EY tax partner Abhishek Jain said to Financial Express Online. The Central government should assure states of not losing the revenue they earn at present to reach consensus on the issue, he said.

“Since these products are not under GST, it breaks the GST chain. For instance, the supplier of capital goods to an oil company and the consumers are under GST, who can avail the input tax credit, but the exclusion of petrol and diesel prevents the company to avail this benefit,” Abhishek Jain said.

Further, some of the products such as naphtha and LPG are under GST while others like petrol and diesel are not. This means that the oil marketing companies have to operate under two regimes — GST and the older excise duty and VAT. This makes it complicated for these companies and also adds to cost, said Abhishek Jain.

He also expects a change in the GST structure to include petrol and diesel, which according to him will have tax rates of 50 per cent and above.

A change in GST rate structure is also envisaged by the CARE Ratings in a recent report in which it said: “If petrol and diesel were to be brought under the GST regime a different tax system would have to be structured for petro-products.” It has assumed the effective GST rates to be at 85 per cent for petrol and 55 per cent for diesel while measuring the impact of such a move on the government revenues.

The overall impact on the economy, particularly consumers, would depend on the final structure of GST rates and the extent of the benefit of reduced tax passed by oil companies, which will likely take place in the presence of anti-profiteering clause under the GST.

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