Will Petrol, Diesel Come Under GST Regime?

Kerala and Maharashtra governments will oppose any move to bring petrol and diesel under the Goods and Services Tax (GST) regime.

As the Union Government feels the heat due to the record prices of Diesel and Petrol, and as many indicators suggest that the rising prices of essential commodities may harm the saffron party electorally, the Finance ministry had to do something to mitigate the surging inflation. In the recent Mood of The Nation survey by India today, 60% respondents felt that the government had not done enough to control inflation compared to 35% in January 2021. This alone could have been a reason of concern for the ruling party.

As it prepares for the crucial Uttar Pradesh Elections next year, the BJP must have done some brainstorming on the possible steps it could take to control the rising prices of fuel, and of essential commodities as a result of that.

In the 45th GST Council meeting today, the centre is likely to move a proposal to bring petrol and diesel under the Goods and Services Tax (GST) regime, reports said.

“Finance Minister Smt @nsitharaman will chair the 45th GST Council meeting at 11 AM in Lucknow tomorrow. The meeting will be attended by MOS Shri @mppchaudhary besides Finance Ministers of States & UTs and Senior officers from Union Government & States,” the Finance Ministry has tweeted.

Finance Minister Smt. @nsitharaman will chair the 45th GST Council meeting at 11 AM in Lucknow today. The meeting will be attended by MOS Shri @mppchaudhary besides Finance Ministers of States & UTs and Senior officers from Union Government & States.@PibLucknow pic.twitter.com/FRuGQT2Cv6

— Ministry of Finance (@FinMinIndia) September 17, 2021

However, Kerala and Maharashtra governments will oppose any move to bring petrol and diesel under the Goods and Services Tax (GST) regime.

The Kerala government, a day ahead of this scheduled meeting, said it will vehemently oppose any move to bring petrol and diesel under the GST regime as that will further reduce revenue generation for the state. It further asserted that the Centre should reduce its levies on the two commodities to provide relief to the common people.

If we split up the retail selling price of petrol and diesel, it could be noted that almost half of the price accounts for central excise and state VAT (Value Added Tax). If the two commodities come under the GST regime, it would impact revenue generation for the states.

Kerala Finance Minister K N Balagopal shared the same concerns while talking to PTI. Mr Balagopal said the state will strongly oppose if there is any move to bring petrol and diesel under the GST regime. He said the fuel prices skyrocketed due to the huge increase of its cess by the Centre and if the Union Government reduces the cess, which will help in bringing down the prices of petrol and diesel. If petrol and diesel are brought under the GST regime, Kerala will lose Rs 8,000 crore annually, the finance minister said.

Maharashtra deputy chief minister Ajit Pawar, who’s also the finance minister of the state, expressed similar reservations. Mr Pawar said the Centre is free to levy taxes but it should not touch areas that are under the state’s jurisdiction, reported Hindustan Times.

“If there is any move to do so, the state government will put forth its view in tomorrow’s GST Council meeting,” the NCP leader was quoted as saying.

Even the BJP government in Uttar Pradesh has opposed the possible proposal. Uttar Pradesh finance minister Suresh Kumar Khanna, according to CNBC-TV18, said the state is opposed to petroleum products being under the GST. “The state will lose a big source of revenue and ultimately it won’t be in people’s interest,” he said.

“Unlikely”

Akhilesh Bhargava, an economist and the Business Editor at HW News, declined the possibility of any such proposal being presented by the Finance Minister.

“I don’t think she (finance minister) will propose it. Petroleum products, being our of the GST regime, the collection goes straight to the centra government. The central government’s treasury is not strong enough to get into a position where they’ll say ‘okay, let’s share what we are getting’. So I have doubt whether they will propose that,” Me Bhargava said.

“There was a dispute between states and the centre over the centre not paying states their share of the GST. That major dispute has been sorted out. But now, I don’t see a reason why the centre would want to bring petroleum under the GST network and start sharing its collection,” Me Bhargava added.

If at all, the government wants to go ahead with this proposal, Mr Bhargava stressed, it would only be out of pressure from the industry players. Petroleum not being under the GST, the industry is spending on the commodities and they don’t get the benefit of what is called ‘Input GST tax’, he said. “I don’t think it’s a material issue. First of all, it will not get proposed passed today. But even if it’s under a serious discussion, I will be surprised,” he added.

When asked if at all this proposal is approved by the council, how would it reflect on the fuel prices, Mr Bhargava said: “Even if it gets approval, I see the centre and states as brothers in arms. They are not going to do anything by which the petroleum prices will suddenly go down. Both of them will conspire to ensure that the prices remain where they are and both of them will continue making money out of it.

Talking about the states’ opposition to such proposal, Mr Bhargava said: “Look at it from the states’ perspective. Here’s a product where they can tax you directly and take it instead of depending on the centre to get their share of taxes. Why would they give this up?”

“All in all, the centre is very happy getting the share of kitty directly and not sharing with states. States are very happy with the same. It’s a good arrangement for them. Who’d bother changing it?” Mr Bhargava asked.