The central and state governments are in no mood to cut the tax on petroleum products. But what is the reason behind this that the governments are not agreeing.
Why petrol and diesel are not coming under the ambit of GST
In the recently held GST Council meeting, petrol and diesel were not brought under the ambit of this tax. Not all states have agreed to bring petrol and diesel under the purview of GST, due to which it has once again gone into cold storage. People expected that they would get relief on the prices of petrol and diesel by coming under the ambit of GST. But the central and state governments are not in a mood to cut any kind of tax on petroleum products. Therefore, petrol and diesel could not be included in GST. After all, how much loss will be caused to the governments by bringing petrol and diesel under GST. Let’s understand.
The retail price of petrol in the capital Delhi on Sunday is Rs 101.19 per liter. In this 32.90 rupees goes to the central treasury. At the same time, the Delhi government is charging Rs 23.35 per liter. Similarly, diesel is being sold at 88.62 per liter. Out of this, Rs 31.80 is going to the central and Rs 12.96 to the state government treasury.
loss to state governments
Petrol and diesel prices are also different in different states due to local taxes like Value Added Tax (VAT) and freight charges. The states also get a part of the taxes collected from the center. State governments levy taxes on petrol and diesel according to their own. Each state has a different tax rate, which is called VAT. In Delhi, it is 30 percent on petrol and 16.75 percent on diesel. Similarly, there is 33 percent on petrol in Madhya Pradesh. An additional VAT of Rs 4.50 per liter and one per cent cess is also charged.
If petrol and diesel are also brought under the GST 28 percent tax slab, the states will earn much less than what they currently earn in the form of Value Added Tax (VAT) from the sale of petrol and diesel. If the prices of petrol and diesel were fixed under the GST regime, then excise duty (which is central’s share) and VAT (state’s share) would be abolished.
What is the figure of earning on petrol and diesel
According to the recently released data by the Reserve Bank of India, the share of revenue from petroleum products in the total sales tax and VAT collection of all the states in the last three financial years has been 70 percent, 64.5 percent and 59 percent respectively. The total sales tax collection of the states in the financial year 2020-21 stood at Rs 3,42,236 crore. Out of this, the share of petroleum products has been 2,02,937 crores i.e. 59.3 percent.
With this, the total sales tax collection for the last two consecutive financial years stood at Rs 3,10,839 crore and Rs 2,88,683 crore. In this, the share of income from tax from petroleum products was Rs 2,00,493 crore and Rs 2,01,265 crore.
Despite lower sales due to the pandemic, the Centre’s tax collection from petrol and diesel has increased by 88 per cent to over Rs 3 lakh crore in 2020-21. Due to GST, 28 percent of the tax amount will be divided equally between the Center and the states. In such a situation, there can be a big loss to the revenue of the governments.
If the prices are regulated under the GST regime, then the tax on the base price as per the GST slab is Rs 11.50 and adding the dealer’s commission of Rs 3.84, then the retail price of petrol will come down to Rs 56.44.
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