NEW DELHI : Petroleum products are unlikely to be brought under the Goods and Services Tax (GST) anytime soon, as doing so can cause states’ fiscal deficit to balloon, while also widening revenue losses for the Centre, two senior government officials told Mint.
NEW DELHI : Petroleum products are unlikely to be brought under the Goods and Services Tax (GST) anytime soon, as doing so can cause states' fiscal deficit to balloon, while also widening revenue losses for the Centre, two senior government officials told Mint.
The total taxation on petrol and diesel, including state-levied value-added tax (VAT) and the centre's excise duty, comes to about 35%-50% (45%-50% for petrol and 35%-40% on diesel), one of the officials said.
Different states levy different amounts of VAT on petroleum products.
Even if the peak GST rate of 28% is applied to petroleum products, there will be huge revenue loss for both the state and central governments, the official added.
Both officials, mentioned above, spoke under the condition of anonymity.
"If petroleum products like petrol and diesel are put under the ambit of GST, consumers may have limited benefit. But, it will end up ballooning the state government's fiscal deficit," the second person said.
"Unless you tax it at about 56%-60%, you can't get revenue neutral in petrol and diesel under the GST regime," the person added.
A finance ministry spokesperson didn't respond to emailed queries.
Revenue neutral is when the government receives the same amount of money despite changing the tax regime.
In this case, the revenue neutral rate would allow states to collect the similar amount of money collected as taxes on petroleum products before and after including these products are put under the GST regime.
"So, if petroleum products are indeed included under the GST regime, the petrochemical industry, which uses petroleum products as industrial inputs will be the major beneficiaries, as they would now be eligible for input credit," the person added.
Industry has been pushing for including petroleum products under the GST saying it would help bring down inflation and ease the pressure on the pockets of citizens.
Earlier, the government had discussed a proposal to levy the peak GST rate of 28%, plus local sales tax or VAT, on petrol and diesel.
However, this didn't materialise.
"State governments are not ready to induct petroleum products like petrol and diesel under the ambit of GST yet as there is a huge revenue implication for them," the second person mentioned above added.
Petrol and diesel prices are revised every month. These prices have remained unchanged since 21 May 2022, when the central government slashed the excise duty on petrol by ₹8 per litre and on diesel by ₹6 per litre.
On 1 September, petrol prices stood at ₹96.72 per litre in New Delhi. This included an excise duty of ₹ 19.90, and a VAT of ₹15.71.
Similarly, diesel prices stood at ₹89.62 per litre, which included an excise duty of ₹ 15.80, and a VAT of ₹13.11.