Combination of 28% GST plus VAT to be charge on petrol, diesel; No pure GST

21 Jun 2018 Evaluate

Amid suggestions to bring petrol and diesel under ambit of new indirect tax to curb the price hike, the government has said that a peak tax rate of 28% plus states levying some amount of local sales tax or Value Added Tax (VAT) on petrol and diesel is likely to be the tax structure when the two auto fuels are covered under the Goods and Services Tax (GST) regime. It added that 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. It also said that 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.

However, the government highlighted that before the two fuels are put under new indirect tax, the Centre has to decide if it is willing to let go the Rs 20,000 crore 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. It added that the timing of including petro products in GST will be a political call which the centre and states will have to take collectively.

Besides, 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 VAT - the lowest being in Andaman and Nicobar Islands where a 6% sales tax is charged on both the fuel. 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%.

As per the government, 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 centre and states.

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