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Some Petroleum Products Could be Brought Under GST by New Government

In April, the GST collection had already shot up to record level of Rs 1.13 lakh crore

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Petroleum Products, GST, New Government
GST levy on natural gas would help state-run oil companies. Pixabay

At least two out of five petroleum products, including the aviation turbine fuel or ATF and natural gas, are likely to be among the first set of petro products to be included in the GST ahead of an earlier agreed schedule.

Sources said that with Modi government again set to take charge of the government at the Centre, the prospect of two products being included into the GST fold has brightened. The Finance Ministry has started preparing ground for next round of discussions at the GST Council with proposal for taking out gas and ATF from GST first before evolving consensus on other petroleum products.

The Ministry of Petroleum and Natural Gas has already put a request for their inclusion in the indirect tax system and the Finance Ministry could consider placing the proposal in the initial meetings of the Council after the new government takes charge at the Centre.

As part of its efforts to build consensus with states on GST launch, the previous Modi government had decided to exclude five petroleum products viz crude oil, petrol, diesel, ATF and natural gas from the list items placed under GST but included products such as cooking gas, kerosene and naphtha in the new regime.

Petroleum Products, GST, New Government
The Ministry of Petroleum and Natural Gas has already put a request for their inclusion in the indirect tax system. Pixabay

This created a messy situation for companies, as they were required to comply with both the old and new tax regimes. Moreover, tax credits were not transferable between the two systems.

A member of the council had earlier said that though petroleum products were not kept out of the GST, its inclusion in the regular tax system might have to wait at least for a year by when the revenue impact of GST would be better known.

The government hopes that the GST collections would be well over Rs 1 lakh crore mark in all months of FY20 easing pressure on the revenue to bring in next wave of reforms. In April, the GST collection had already shot up to record level of Rs 1.13 lakh crore.

“ATF may be the first among petro product still outside GST. Inclusion of natural gas could be next or may be done simultaneously with ATF,” said government source privy to the development.

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The jet fuel price’s inclusion would allow airlines to take input tax credit on the GST paid thus bringing down the effective cost. Similarly, GST levy on natural gas would help state-run oil companies such as ONGC, IOCL, BPCL and HPCL to save tax burden to the tune of Rs 25,000 crore as they would get credit on taxes paid for inputs and services. Tax credits are not transferable between the two different taxation systems.

Experts said that the ATF price would come down if it is kept in the 18 per cent GST bracket and no other surcharge is levied. The lower fuel cost would mean ticket prices going down for air-travellers. It would benefit corporate travellers the most as they would be able to claim credit on GST paid besides their effective tax rate would also come down. Fuel accounts for nearly 30-40 per cent of an airline’s operating cost.

Petroleum Products, GST, New Government
The government hopes that the GST collections would be well over Rs 1 lakh crore mark. Pixabay

Inclusion of gas would not pose a challenge for the GST Council as it is largely an industrial product where a switch over to new taxation would not be difficult. The revenue implication for the states is also low in the case of this switchover.

Earlier, former Oil and Petroleum Minister Dharmendra Pradhan had also made a strong case for inclusion of natural gas in GST saying that if polluting coal can be included, then the environment-friendly fuel certainly deserves a place in the new regime. He also favoured bringing others petro products under the GST gradually.

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Gas sales, including CNG and piped gas supplies attract VAT ranging from 5-12 per cent. (IANS)

Next Story

What Are the Benefits of Introducing GST in India?

GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST

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GST
The GST created a unified tax structure and provided businesses with certainty and transparency. 

The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. The tax structure which India had before the advent of the GST was quite complicated and extremely convoluted.

There were many taxes which were administered by a myriad of governing bodies, some going down to the city level. This created a lot of problems for businesses and consumers alike. Not only did businesses have to employ people to figure out and compute the tax, but they also had to figure out who to pay it to.

GST
Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

This created a drag on the economy and took money out of productive uses. All of this changed with the introduction of the GST tax. The GST created a unified tax structure and provided businesses with certainty and transparency.

Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

Some of the main benefits of the Goods and Services Tax system are:

1. Simplification of the Tax Code:

The pre-GST era was characterized by a complex and murky tax structure in which companies had to navigate as best they could. There were many layers of taxes such as VAT, Cess, Central Excise Duty as well as local taxes at the city level, which needed to be paid when a product or service was delivered to the customer.

This has now been simplified with the introduction of the GST. Now companies need to keep track of one single tax. They can now file taxes with a single entity in a secure manner.

2. Ease of Doing Business:

The implementation of GST has brought India up the ease of doing business rankings. Having a convoluted and complex tax structure with the manual filing of taxes creates a massive volume of paperwork.

Not only was there a lot of paperwork, but offline tax filing also created scope for corruption. GST has changed all of that with the introduction of one single tax under a single tax authority. It is now a much more streamlined process which is easier for businesses to navigate.

It is also essential to have a streamlined tax process for attracting foreign investors, so that has helped with Foreign Direct Investment in India.

3. Double Taxation:

Pre-GST, there was a problem of cascading taxation, wherein taxes would be piled on top of each other, leading to double taxation. A lot of the time, businesses and consumers had to pay a tax on top of another tax.

This was because there was no way for businesses to claim an input tax credit for every step of the way. GST has changed that entirely by introducing a system where each every step of production of a product is recorded, so taxes are only added incrementally, and double taxation is avoided.

Also, small businesses faced a daunting task of navigating the complex tax system, and the GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST. This has been a significant benefit of GST.

4. Tax Compliance:

Tax compliance has always been an issue in India, under the older tax system where tax filing was mostly done manually, there was a lot of tax evasion and under-invoicing.

Since there was very little that the government could do to track the production of goods. With the advent of the GST, the way the system is designed, it is much easier to track the production of products through the various invoices uploaded by businesses.

The Input Tax Credit system also incentivizes companies to report the number of goods and services used so that they can claim Input Tax Credit. This has been a positive development for tax collection.

5. Increased Tax Collections:

With increasing tax compliance, there is a potential for increasing tax collections. With the increased tax collection, the government can spend more money on important public services like health, safety, etc.

This is also one of the most important benefits of having a tax system that allows higher rates of compliance.

GST
The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. Pixabay

6. Foreign Investment:

In a globalized world, it is vital to attract capital from around the world. Top companies who want to invest in a country look for stable and transparent tax regimes so that they have regulatory certainty.

The older tax structure was haphazard and under the authority of multiple tax collecting bodies. This created a problem for foreign firms who wanted to invest in the country but had a tough time negotiating the tax landscape of the country.

The GST has completely changed that. The GST is under one central authority and uses the GSTN (Goods and Services Tax Network), which is the information technology service which underpins the whole system.

The GST system is also much more nimble and able to respond to the needs of the market because it is under one single tax authority, the GST Council. This is also an excellent benefit for the country as it doesn’t take a lot of consultation to change the rules in case of adverse market conditions.

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In conclusion, there are several benefits to the country as a whole with the implementation of the GST system. Small business is the driving force of the Indian economy, providing a lot of employment. Things like the Composition Scheme under GST has helped simplify the tax filing for small business while maintaining compliance.