Context:

With the prices of automobile fuels surging, Minister for Petroleum and Natural Gas said that bringing petroleum products under the ambit of the Goods and Service Tax (GST) was being considered by the government as part of a “holistic strategy” to address the issue. 

How will this help?

• When India moved to the GST regime last July, petroleum products were excluded, along with alcohol, real estate and power.
• In the current structure, both the central and state governments levy a tax on petrol, diesel, crude, and natural gas.
• The Centre charges excise duty, while each state has its own Value Added Tax (VAT). Added to these are the dealer commissions, all of which inflates the price that consumers pay at the retail pumps.
• Bringing petroleum products under GST would mean a single rate — 18% or 28% — in place of excise duty and state VAT, and lower pump prices.
• It will take the political heat off the government, and is likely to lead to lower transport costs for industry, with benefits in terms of boosting production and competitiveness.
• It will also be in keeping with the idea of a ‘single nation, single tax’, which is aimed at improving production and employment while taxing consumption.

A flip side

• For both the federal and state governments, petroleum products, like alcohol, are huge revenue earners. 
• Revenue considerations, therefore, are likely to drive the decision on bringing petroleum products under GST. The decision will have to be taken by the GST Council, in which states have a major say.
• Even if they agree to having petrol, diesel and other products under GST, they will still have the autonomy to levy an additional or top-up tax, which can vary across states. This surcharge can be in the nature of a “sin tax” — a way for states to discourage consumption of certain products like liquor or tobacco — and to reduce vehicular pollution.
• Even the Centre will have reasons to worry — not only because of the huge revenue petroleum products bring, but also because it is committed to compensating states for any shortfall in revenues for five years.

Source:Indian Express