A peak tax rate of 28% plus states levying some amount of local sales tax or VAT on petrol and diesel is likely to be the tax structure when the two auto fuels are covered under the GST regime, a top government official said. The peak GST rate plus VAT will be equal to the present tax incidence, which is made up of excise duty, levied by the Central government, and VAT charged by the states. But before the two fuels are put under the GST, the Centre has to decide if it is willing to let go around Rs 20,000 crore of input tax credit it currently pockets by keeping petrol, diesel, natural gas, jet fuel and crude oil out of the GST regime that came into force from July 1, 2017, the official said.
“There is no pure GST on petrol and diesel anywhere in the world and so in India too it will have to be a combination of GST and VAT,” said the official, who is closely involved with the GST implementation. The timing of including petro products in GST will be a political call which the Centre and states have to take collectively, he said. The Centre currently levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy value added tax (VAT) — the lowest being in Andaman and Nicobar Islands where a 6% sales tax is charged on both the fuels. Mumbai has the highest VAT of 39.12% on petrol while Telangana levies highest VAT of 26% on diesel. Delhi charges a VAT of 27% on petrol and 17.24% on diesel.
The total tax incidence on petrol comes to 45-50% and on diesel it is 35-40%. The official said under GST the total incidence of taxation on a particular good or a service has been kept at the same level as the sum total of Central and state levies existing pre-July 1, 2017. This was done by fitting them into one of the four GST tax slabs of 5, 12, 18 and 28%. For petrol and diesel, the total incidence of present taxation is already beyond the peak rate and if the tax rate was to be kept at just 28% it would result in a big loss of revenue to both the Centre and the states, he said.
“The Centre doesn’t have the money to compensate the states for loss of revenue and so the solution is to have a peak rate of tax plus allowing states to levy some amount of VAT keeping in mind that the overall incidence should not exceed the present levels,” he said. GST has been spoken of as a panacea for high fuel prices but the structure in works would ensure rates remain almost at same levels unless the Centre and states decide to levy pure GST of 28% and not go for an additional VAT or a cess.
