Does the rising petrol and diesel prices burn a hole in your pocket? Wishing for the Goods and Services Tax Act to be levied on the petroleum and diesel industries is quite reasonable. The fluctuating fuel prices have long been affecting the people of the nation. And as of now, the taxpayers are strictly engaged in the struggle to comply with the indirect taxation regime. In such phase, the unsteady process of an important component of daily use is creating an adverse effect on the people’s finances. But do you wonder why the government is hesitating to deliver the goods and apply GST on petrol? Here’s why:
The federal nature of the Goods and Services Tax Act
You must know the fact that GST is dual in nature. It means that the power to levy a tax is kept intact of both the center and the state government as per the federal rules of Indian constitution. Now, every state levies different amount of percentage on the sales of petroleum. Also, the percentage varies by a significant amount. For example, the Indian union territory Andaman and Nicobar levies a minimum of 6% tax on the petrol. On the other hand, the land of Shivaji Maharaj, Maharashtra, levies 40% tax on the petrol. Let’s take a look at the changes that will occur post-GST-implementation on the petroleum industry:
- Since the petroleum is a vast industry, it attracts the dealer’s commission that makes it costlier.
- As per the GST bill details, combining all the external factors like the central government’s charge of INR 19.48 on petrol and the dealer’s commission, the total levies would go above 100%.
- So even in the government’s wildest dreams, such a high percentage of GST on the petrol would never be applicable across India.
What will happen if the government does actually apply GST on the petrol?
First of all, it will be a political suicide for the government. Because once the petroleum industry comes under the GST umbrella, the states that levy a low tax on the petrol would experience a steep hike in the prices. Also, the states that have long been strangled in the situation of fiscal deficit, would disagree to reduce the levied percentage on the petrol. And since the new taxation regime has been launched in India, the state governments have been experiencing its side-effects the most. As per GST bill latest news, the process to get an approval to levy 100% GST on petrol would require the central government and the ruling party to explore all avenues.
What’s there in the government’s bag for a common man?
As of now, the government has nothing. The central government has already cut down the petrol and diesel prices. Pushing the prices further down would create a disastrous impact on the revenue collections, and ultimately on the fiscal deficit. Moreover, the government is also aware of the fact that further increase in the prices would result in the inflation. Following the hike in the petrol prices, the essential commodities, that are used to transport vegetables and other items, would also raise charges. Also, the GST bill details do not have enough room that the process of softening the petrol prices could effectively be mapped out.
Read Also: Impact of GST on Coal Consumers
The effect of revenue neutral rate
Now you’d be amazed to know that the ruling party included the petroleum under GST bill details. But the government couldn’t possible launch it under the Goods and Services Tax Act. The reason being the unsatisfactory analytical results of the revenue neutral rate (RNR). Most of the fuel companies in India are state-owned. As a result of which the government took down the pricing mechanism for the fuel industries.
This decision was made following the extensive hike in the prices of crude oil. The global crude oil providers like Brent crude and OPEC increased their prices. In order to ensure that the expansion of the fuel industries in India is steadfast, the government took the burden of pricing mechanism off of their shoulders.
The Goods and Services Tax Act has adversely affected most of the Indian businesses and also troubled millions of taxpayers. But since the regime is implemented in the nation, the taxpayers should make efforts in the direction to comply well with the regime. And as far as the petroleum industry is concerned, the government couldn’t make an unfair decision by putting a strenuous and sudden load of GST on the states that levy a low tax on the petrol. Hence, there is a need to work on some new and effective provisions that could bring relief to the taxpayers of the nation. The Goods and Services Tax Act needs to be fully resolved so that the people could experience its real potential.