Petro products under GST – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/petro-products-under-gst/article34163219.ece

Will Opposition-ruled States take the bait?

There is no Constitutional or any other legal bar on bringing petroleum products under the Goods and Services Tax (GST) net.

According to data from the Petroleum Planning and the Analysis Cell, the total contribution of the petroleum sector to the Centre’s coffers has risen from ₹1.72-lakh crore in 2014-15 to ₹3.34-lakh crore in 2019-20, while for State governments, it has risen from ₹1.6-lakh crore in 2014-15 to ₹2.21-lakh crore in 2019-20. This lends credence to the theory that neither the Centre nor the States were ever serious about bringing petroleum products under the GST, with fuel tax yielding a cornucopia of revenue to both.

But, lately, BJP functionaries led by Petroleum Minister Dharmendra Pradhan have been throwing the gauntlet at the Opposition ruled States — will they agree to petroleum products being brought under the GST net — is their taunt. All that it would take is convening the GST Council meeting which believes in taking unanimous decisions. Has the BJP stumped the Opposition? If the lack of unanimity in the council meeting on this seminal issue is attributed to Opposition intransigence, their bluff would be called.

The GST would definitely tame the raging fuel prices across India even if the 28 per cent peak rate is levied, the rate reserved for luxury goods or goods perceived to be catering to the rich. Besides it would put an end to the cascading effect of full tax as opposed to VAT which GST is. As it is States impose VAT on fuel on a price inclusive of the Central excise duty.

The government’s defence of heavy excise on petroleum products — a 300 per cent spurt from ₹10.38 per litre in March 2014, to ₹32.98 per litre in September 2020 and on diesel, around 600 per cent hike during the same period, from ₹4.58 per litre to ₹31.83 per litre — is that this tax revenue is crucial for running the numerous welfare programmes including free Covid vaccination for the poor is hard to accept.

Indirect taxes by definition are regressive. And indirect taxes on fuel are all the more so because a hike in diesel price triggers a vicious cycle of price hike. The irony is the poor for whom the numerous welfare programmes are meant are made to foot the bill vicariously as fuel taxes hit the poor the most.

The late Arun Jaitley committed the cardinal sin of throwing the baby with bathwater when in 2015 he abolished wealth tax on grounds that it was yielding only about ₹1,500 crore of revenue. He should have made it all inclusive instead of targeting just six asset classes. There is nothing wrong in imposing a wealth tax of 2 per cent on net wealth in excess of ₹2 crore.

Likewise, estate duty kept in suspended animation since 1985, must be brought back. Many States in the US impose a stiff estate duty or its variant the inheritance tax by impounding as much as 50 per cent from one’s estate. What is wrong if the Centre impounds 10 per cent of an estate that is in excess of ₹10 crore? And why should stock market gains be let off with a slap on the wrist — 10 per cent tax on long-term capital gains in excess of ₹1 lakh when salaried people pay 30 per cent tax on incomes exceeding ₹10 lakh?

The writer is a Chennai-based chartered accountant

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