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Tags Current Affairs

Case for petroleum under GST

Date: 06 March 2021 Tags: Bills & Laws

Issue

Prime Minister Narendra Modi has said that the government is trying to bring petroleum products under the ambit of GST.

 

Background

The prices of petroleum products have been rising continuously over the past few weeks. This has revived debate on taxes on petroleum products.

 

Details

  • Including petrol-diesel under ambit of GST will lead to a sharp fall in current prices.

  • Customers are paying more taxes than the actual base price for petrol and diesel. Central excise share is a major component of taxes.

  • The highest slab under the existing GST rates is 28%. If petrol and diesel were included in the highest bracket, the final price will be lower than current one.

 

  • Revenue distribution between centre and states will become more equitable if petrol-diesel is brought under GST.

  • According to finance commission formula, state will get more revenues out of sale of petrol-diesel if GST regime is applied. Currently, states receive only a small amount of taxes in comparison to central excise duties.

 

  • Subsuming fuel under GST can lead to potential revenue loss in addition to giving up of autonomy.

  • The constitution gives power to GST council to decide the date on which GST may be applicable on fuels. However, state governments fear of union government’s hegemony on taxation and have not accepted the demand.

  • There are also concerns that there will be significant loss of revenue through this move, leading to fiscal stress on state coffers.

 

 

Way forward

  • The union and state governments have to come to a consensus regarding revenue compensation once GST comes into play.

  • Alternative sources have to be identified before fuel is brought under the GST ambit. This is a thought for the future.

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