Indian Tax Solution

Bringing Petrol And Diesel Under GST Is Impractical, Says NITI Aayog Vice Chairman

Niti Aayog, Vice Chairman, Rajiv Kumarsays says the government is largely dependent on the petrol and diesel taxes, which is around 90 per cent, and it's impractical to think of bringing them under GST right now.

There have been increasing talks about bringing petroleum products, essentially petrol and diesel, under Goods and Services Tax (GST). While such a decision will go a long way in bringing petrol and diesel rates down, considering the amount of taxation the state and central governments will have to let go, it is unlikely to happen anytime soon. This very notion has been openly expressed by the Vice Chairman of Niti Aayog, Rajiv Kumar, who in an interview with IANS said, "It (oil) can't be brought under GST. That's because the total state and central taxes on petrol put together are around 90 per cent right now."

While, in principle, supporting the idea of bringing all items under the new indirect tax system, Kumar said, "I can't see how any state will take a cut so huge as the highest rate under the GST is 28 per cent. A new GST band will have to be opened up, and that will be an enormous exercise." Although several senior ministers have demanded that petroleum products be brought under the new taxation regime, Kumar says that those talking about doing it now have not thought this through.

Talking about an alternative, Kumar says that a better way to go about this will be to first start reducing taxes on petroleum products. Both, the central and the state governments, should start the process of deterring the dependence on oil taxation, and the former in particular, which imposes an ad-valorem tax on oil that leads to a windfall gain when prices rise, should cut taxes first. Kumar pointed out that out the ₹ 2.5 lakh crore as tax on oil collected by the Central government, almost ₹ 2 lakh crore goes to the states. He said, "Higher oil prices are like a tax on the economy. If oil prices are brought down, economic activity will also improve. Once that is achieved, once the revenues have gone up from other sources and the economy has picked up, then you can think of bringing oil under GST. It's not that easy." He agrees that everything should be brought under GST but it should be done over a period of time as that is the more practical approach.

Members of both the ruling as well as the opposition parties, on the other hand, have been demanding to bring petroleum products under GST. Road Transport and Highways Minister Nitin Gadkari to Petroleum and Naural Gas Minister Dharmendra Pradhan, and almost every other senior BJP minister have spoken in favour of it. In fact, Finance Minister Arun Jaitley had told the Rajya Sabha that the Centre was in favour of it as well but after building a consensus with states. A similar statement was made by Maharashtra Chief Minister Devendra Fadnavis as well.

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