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GST on Petroleum, Natural Gases and Airline Turbinal Fuel

Petroleum, Natural Gases And Airline Turbine Fuel. Whether Different Slabs of GST or Not?
Since the rolling-out of GST an year and half ago, Petroleum, AFT and Natural Gases have been the topics of debate and concern that weather these items must be kept under GST or not and under which slab of GST. After various meetings and discussions the GST council has not been able to reach a final conclusion to these questions.

Petrol and diesel were kept out of the ambits of GST because these products are one of the highly taxed items by the government. They are not only a major source of revenue for central governments but also state governments. The center charges excise duty on them which was Rs. 19.48 in September 2018 on petrol and Rs. 15.33 on diesel. On addition to the excise duty, VAT is also charged by different state governments and union territories which range from 6% being charged in Andaman and Nicobar to 39.11% being charged in Mumbai and Thane.

Apart from taxes there is a dealer’s commission added on these items, petroleum companies like Indian Oil, Hindustan Petroleum and BPCL pay commission of Rs.2.58 on and Rs.2.60 on petrol and Rs. 1.60 on every liter of diesel they sell.

In the current scenario when fuel prices are soaring high there is pressure from all sides on the governments to bring petrol and diesel under the ambit of GST but the reality is that the central government is not solely responsible for bringing petrol and diesel under GST, it also depends a lot on states for which VAT charged on petrol and diesel is a major source of revenue specially for states like Andhra Pradesh, Maharashtra and Uttar Pradesh. In addition to these taxes in some states like Bihar there is an additional cess charged on petrol and diesel which make them even more expensive in these states.

These are the few reasons why government has kept petrol and diesel out of the ambits of GST, the excise duty added with VAT and cess total amounts to approximately 57% of taxation on these products and the dealer’s commission on top of it. That is why a consumer ends up paying almost double the amount of what the government pays for it.

Petrol and diesel which are being taxed at 57% if kept under GST would be charged maximum at 28% under the current slabs then states and center would get maximum shares of 14% which is far below the rate of VAT and excise duty charged. So this is the major setback for bringing petrol and diesel under GST.  There will be a huge loss of revenue for Central Government as well as for all the state governments. There are some states Assam which are ready to support GST for petrol and diesel only after GST stabilizes. During the meeting of GST council in which the decision on petroleum was to be taken. Representatives from various state governments were ready on one condition that central government will compensate for the loss in revenue due to GST on petroleum. Since petroleum products form a major source government cannot take the risk of reducing the amount of taxes it receives from the biggest contributor. Petroleum is the main import item for India and also the driver of the Indian economy. Another reason for not bringing it under GST and keeping the prices a bit high is to control the amount of consumption of fuels. At the same time when the crude oil prices fall in the international market which is controlled by the OPEC countries, Indian government still doesn’t reduces the tax rate instead it purchases more of crude oil and keeps it as reserves. Government does that for a variety of reasons. Firstly, our major oil suppliers are Iraq, Iran and Saudi Arabia. These countries are constantly at trivial relations with countries and it doesn’t take time in Middle-East for a small dispute into a full-fledged war. So in emergency situation if the supply of oil from middle-east is cut or reduced then government has enough petrol to run the economy for a longer period of time. Bringing it under GST would reduce the prices when the price of crude oil falls and thus increase the consumption under situations.

Secondly, bringing petroleum under GST would boost the rate of inflation in a harmful manner. Since the rate of GST on other major items has been reduced and thus their prices have fallen, a further reduction in the prices of petrol would further enhance the rate of inflation in the economy.

These are the few reasons why petrol and diesel have been kept out of the ambits of GST. Although law to bring them under GST has already been passed but not yet implemented.

Under Central Goods and Services Tax Act, 2017, Chapter 3 Levy and Collection of Tax-

“9.(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.”

This shows that government may some day in future bring petroleum products under GST.

Talking next about natural gases it is another item which is kept outside the ambit of GST. Although India has rich reserves of natural gases but it still amounts to just 7% share of the energy consumption in India. Central government charges no excise duty on natural gases but states charge VAT which range from 13% to 20% and central government charges 20% excise duty on CNG. There was just one main reason why natural gases were kept outside the ambits of GST was that if it was kept under the slab of 12% then it would result in the loss of revenue for the government and if kept under the slab of 18% then it would become more expensive than the current rate. On the other hand there are states like Andhra Pradesh, Rajasthan and Maharashtra which are having all the major reserves of natural gases in India are against the imposition of GST on natural gases because then it would make a uniform rate of natural gases hence the gas producing states would be at a disadvantage.

Since no decision was taken by GST Council to bring natural gases under GST and the government also didn’t pass any bill to bring it under GST so we can conclude that in near future natural gases would remain under the list of those items exempted from GST.

Another item which is kept outside the ambit of GST is Airline Turbine Fuel popularly known as ATF. Airline companies have been constantly demanding from the central government to bring ATF under the ambit of GST. This will save Airline companies taxes up to 3000 crores to 5000 crores and they will also be entitled to input tax credit. There was a proposal to bring airline fuel under GST tax slab of 28%. Currently Indian states charge a sales tax of up to 30% in addition to the 14% excise duty charged making it the costliest airline fuel in Asia. At Indira Gandhi International Airport in Delhi the net charged on ATF is charged at approximately 37% whereas in Singapore it is charged just at 6%.   ATF amounts to 35 to 40% of the net operational cost of the airlines.

Lower taxes would boost air traffic which would compensate the loss of tax collection. India is one of the fastest growing aviation traffic markets in the world with 20% passenger for six months in a row in the year 2018. The other way is to increase the GST charged on air to increase from current 5% in economy class and 12% in business class to 12% in economy and 18% in business, although this would increase the tax collection but affecting the other way it would again result in the reduction in amount of travelers. This would harm the government’s UDAN project. The most affected ones through this would be the smaller airlines and chartered plane companies which depend mainly on customer base because they cannot tolerate this short term loss in revenue even though in long term it may benefit them. Whereas the large airline companies like Global Aviation Private Ltd. and Jet Airways Private Ltd. would be able to handle the short term loss in revenue due to reduction in customer base.

Though, till date government has stated no clear instance on the inclusion of ATF under GST, different officials and ministers in the given differentiated opinions regarding this. In the near future we cannot expect anything about ATF but this for sure that petroleum and related products need different tax slabs under GST which may not be permanent but need to be revised regularly according to the price in the international markets and the revenue collection by the government.

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