The retail price of petrol now in Bhubaneswar is Rs 72.67 and diesel Rs 69.40 per litre. The retail prices of petrol and diesel in the first week of April, 2014 were Rs 71.48 and Rs.58.82, respectively. The prices of petrol and diesel during this period were lowest in the first week of April 2016 – Rs 58.57 and Rs 47.94, respectively. There is discontent among the consumers over the price rise. There is now a demand for bringing petrol and diesel into the purview of GST. The Union Minister of Petroleum and Natural Gas has stated to write to the GST Council for inclusion of petrol and diesel in GST. The argument is that inclusion of petrol and diesel in GST would result in reduction of prices as credit of tax paid on inputs would be available.
The Empowered Committee (EC) of State Finance Ministers had a thorough discussion on the subject and all the States were against inclusion of petrol and diesel in GST. The EC was constituted to coordinate among the States for smooth transition from State Sales Tax to VAT and subsequently for introduction of GST in the country. The EC had decided not to include petrol and diesel in VAT also. The reason being that sales tax from petrol and diesel is a major share of the States’ sales tax collection, around 25% of total Sales Tax/VAT collection in a State. Benefit of giving credit of tax on inputs would affect revenue collection. Tax from petrol, diesel is also collected from the organised sector and there is little effort in collection and there is least possibility of leakage or evasion. Besides, another plea was taken that petrol and diesel are considered demerit goods and their high consumption ought to be discouraged.
There was almost a unanimous view among the State Ministers to keep petrol, diesel outside GST. However, another view emerged that at a later time it might be considered proper to include petrol, diesel, etc., in GST in order to eliminate cascading and reduce the prices of commodities by allowing input tax credit. If constitutionally these goods are kept out, it would be difficult later to again bring in an amendment of Constitution only for this purpose. Hence, in the 101st Constitution Amendment Act, the GST Council is given the power to decide a date when petroleum products, viz., crude, petrol, diesel, aviation turbine fuel and natural gas will be brought under GST. But alcohol liquor for human consumption is constitutionally kept out of GST and VAT without input tax credit is levied on it.
Presently, the Centre collects Excise Duty and Additional Excise Duty on Petrol and Diesel and State collects VAT without input tax credit. The Centre collects Rs 4.48 Excise Duty and Rs 15 per litre of petrol; and Odisha collects VAT @ 26% on sale price, which comes to Rs 14.32 for sale of one litre of petrol. Similarly, The Centre collects Rs 6.33 and Rs 9, respectively, per litre of diesel; and at 26%, the State collects Rs 13.86. Hence, the Centre collects Rs 19. 48 and Rs 15.33 whereas the State collects Rs 14.32 and Rs 13.86 for one litre of petrol and diesel, respectively.
VAT is collected on the price that includes Excise Duty and Additional Excise duty. The basic price of petrol per litre at present is Rs 35.59. Excise Duty of Rs 4.48 and Additional Excise Duty of Rs 15 are collected per litre. VAT is collected on Rs 55.07, i.e., basic price plus Excise Duty and Additional Excise Duty. If the price is reduced by one rupee, the State would lose Rs Rs. 0.26 as VAT. The State would have got at rate of 26% plus loss of its share in the Central devolution of 42% of the reduced price. On the other hand, with reduction of one rupee, the Centre would lose Rs 0. 58.
If petrol and diesel are included, GST would be collected at the highest rate of 28 % (CGST plus SGST) on the basic price. Basic price of petrol is Rs 38 and diesel Rs 35.59. At the rate of 28% GST, the Centre and the State would get Rs Rs.5.32 each for sale of one litre of petrol and Rs 4.98 for sale of one litre of diesel. The Centre would lose Rs 14.16 and Rs 10.35 for sale of one litre of petrol and one litre of diesel, respectively. Similarly, the State would lose Rs 9 for sale of one litre of petrol and Rs 8.88 for sale of one litre of diesel. The State’s loss would be also more towards Central devolution on account of less collection of CGST compared to Excise/Additional Excise Duty. Besides, there would be further loss of revenue as credit of tax paid on inputs on petrol and diesel would be available.
Provision has been made in the Constitution to compensate the States for any loss on account of implementation GST for five years. To compensate the States, cess is collected from four items, viz., tobacco and tobacco products, aerated drinks, pan masala and luxury vehicles. Compensation is given on a bimonthly basis. In the event of inclusion petrol and diesel in GST, the compensation cess presently collected would not be sufficient. Further, cess has to be imposed, and maybe from petrol and diesel itself to the extent of the loss. The price burden may be the same. Moreover, GST is yet to be stabilised. GSTN developed glitches which are being corrected. Return filing system is being given a relook to make it easy. Under the circumstances, this is not the time to make any addition or deletion in the system. let GST stabilise first and then, the issue of inclusion of petrol and diesel can be taken up.
(The writer is an Additional Commissioner of Commercial Taxes, Odisha. Views expressed are his own)