India’s chief economic advisor backs bringing petroleum products under GST regime

A proposal to bring petroleum products under the Goods and Services Tax (GST) has been backed by the Chief Economic Advisor K V Subramanian. He said the decision would have to be taken by the GST council.

“It will be a good move, but the decision rests with the GST Council,” Subramanian said during a recent interaction with FICCI. Petroleum Minister Dharmendra Pradhan had also urged Union Finance Minister Nirmala Sitharaman to bring petroleum products under the ambit of the GST.

Continuous rise in fuel prices has put a big burden on people and become a political issue in states where assembly elections are due. Subramanian also said inflationary pressures are mostly on account of “food inflation”.

Rising fuel prices have a massive adverse impact on the economy. Petroleum products are not in the GST regime—this means input credit is not available and the tax element sticks to all products. Given the universal utilisation of petroleum products, this obviously puts inflationary pressure and increases costs of all products.

While the Central government did include petroleum products within the ambit of GST, five products; crude oil, petrol, diesel, aviation turbine fuel, and natural gas were temporarily excluded. They were to be included whenever the GST Council decided to do so.

The Centre and States have been looking at petroleum products as a cash cow by non-inclusion in the GST regime and levying central excise duty and state taxes on them. 

While it was necessary to protect the revenues of the Centre and the States when they were entering into GST, it makes little sense to continue to exclude these products now, three years after the implementation of GST. 

Once within the ambit of GST, the GST Council would decide on the rate, ensuring uniformity within the country. More importantly, credit of input tax would be available—this will facilitate industry, create audit trails, cut costs, and rationalise GST.

Given the revenue from petroleum products being collected by both the Centre and States, this will be a difficult but essential decision. And the GST Council would need to take this sooner rather than later. 

Petrol and diesel prices in India are close to reaching Rs 100 a litre. 

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