Why do petrol and diesel prices not fall into GST?
The answer to the question lies in predictable government income or revenue! We at Mumbai Multimedia Studio analysed the current scenario to find the best answer to this solution as to why why it is sky rocketing in our city of Mumbai, India
Image Sources Google
For an in depth understanding of what the hell GST is about, kindly have a glance at my earlier answer here: To Start with, Initially - What are the things not covered under GST The following are categorised as “neither goods nor services” and are exempt. Regular salary paid to an employee, Court judgements, Constitutional functionaries/heads of presidency bodies and therefore the remuneration they get for doing a statutory job, and Funeral services across all religions. These won't come under GST in the least. Oil and gas, and alcohol still be under the sooner VAT/excise regime. The GST notification specifies the intent of the Central Government to bring these under GST in due course of your time. What is the matter with bringing them under GST? Petrol prices that you simply and that i pay are delineated as follows: (as in Delhi, 25th December 2020)
In simple English, for each litre of Petrol: Crude oil is imported by refineries at ₹20.19 Their revenue in refining it to consumption readiness: ₹9.34 (That's an affordable 15% margin going by the ₹3.31) Excise collected by Centre: ₹ 21.48, (that's SEVENTY percent of the input price) brings it to ₹51.01 at which it's sold to dealers. Dealers add ₹4.23, which isn't much by way of margin for them. (Around 6–7%, hardly enough to take care of a running business) Now the killer. The VAT that states impose. This varies, but the effect of compounding is telling! Some states charge 27% on this ₹54.24 which adds ₹14.64. For every litre of petrol, the refinery charges you ₹9.34 and therefore the dealer ₹3.31 which covers their cost of operations and profit. On the face of it that may not much. the culprit is that the ₹38.12 that goes by way of central and state taxes, almost doubling it. Why is it so essential for the govt to keep up such high taxes?
Revenues. Oil excise revenues contributed 54% of Central excise revenues, up from 39 and 44% the previous two years. Excise contribution to total taxes also rose from 17 to 21 in 2020. The Centre has been taking advantage of low global oil prices to prop its revenues, saving up for a period of time. Simple business sense. Same goes for the states. Which organisation will walk the talk and provides up their VAT revenues? For all its mouth being with the people the communist government of Kerala has hiked VAT from 26 to 40% over two years. This was also done by Maharashtra and Haryana so this is not even party specific. What would be the rates if the GST did inherit force? If GST did inherit force, the Centre would only get to impose GST on the ₹9.34 which the refinery charges and therefore the ₹3.31 the dealer charges. (Remember, GST unlike VAT isn't compoundable). At the very best slab of 28% the full taxes come to ₹3.61, that's one tenth of the ₹36.1 that currently go as taxes! To maintain existing tax revenues under GST, petrol will need to be taxed at 280% Clearly that offers scope for enormous panic and lies. (It gives scope for lies and disinformation, wiggling with psychology on the big looking figure of “280% tax”, to people that don't understand this jargon) The Government may like better to bring it under GST at a far lower rate, say 50% (on the 2 differentials of 9.34 and 3.31 rupees) which Would bring down the ultimate price to an inexpensive ₹51.64 (remember, it isn't about oil revenues alone. These taxes are important for the planning of presidency spending) Great, so why don't they are doing it? Notice one thing? The Central Government charges a flat rate of ₹21.48 NOT a percentage. this is often to make sure PREDICTABILITY in Central revenues. regardless of the dealers charge, the refineries charge, international prices of dollars per barrel go, the govt is guaranteed ₹21.48 for each litre of petrol sent to a dealer. The daily fluctuations you see are largely thanks to the commission the dealer charges (the ₹3.31, that's raised or lowered unregulated, but on a nudge-wink basis with the government), and also the VAT the states charge, which is simply touched periodically. (Oil VAT is equally vital to a state's finances!) The Government cannot leave its single biggest revenue contributor to the mercy of international fuel prices and also the rate with the dollar. Switching to the GST (whatever the rate) will take them down that route. Their revenues are a particular percentage of the revenues earned by the oil marketing companies and also the dealers, which is successively a function of the identical dreaded pair of international oil prices and exchange rates! One little kerfuffle within the geographical region and that we are toast! Supplies would dry and costs would rocket! On $50 a Barrel internationally, that's roughly ₹20 a litre crude, and ₹51.64 final price on oil GST of, say 50%. On $100 a barrell that's another ₹25 (₹20 approx for the oil and ₹5 pessimistic estimate on increased dealer and refinery margins) Bottom line: moving to a GST regime will one, see a far far higher slab than 28%, and more importantly will tie India's most vital income source to random international events in say Iran, Democratic People's Republic of Korea or Syria! Should India then abandon the conceive to move oil under a GST regime? Not so soon. As mentioned, the chance is of going back on the prudent arrange to insulate India from world oil shocks or rate of exchange problems. over a coffee price, businesses and folks would be happier with a STABLE price. Unless the govt. finds another source of revenue, it's unwise to tinker with this arrangement. My guess is that the govt will wait to work out how the regular GST is coming along, and also the revenues from that, before taking a invoke this. [That doesn't look too pretty. The deadline for submitting pre-GST bills to assert input credit against GST]
Comments