Revenue loss still a road block to fuel GST

livemint.com:

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.