Representational Image /Gas
Representational Image /Gas

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

Sources said that the prospect of the two products being included into the GST fold has brightened as the government plans major restructuring of GST after settling the compensation issue with states.

Also, government wants that shift to GST 2.0 should be complete with fewer rates and limited exemptions.

With changes in rate of taxation being considered for discussion in forthcoming GST Council meetings, sources said the finance ministry may also explore whether at least two of the petroleum products are brought under the GST fold while decisions on others could be postponed till June 2022, when the five year transition period for compensation to states ends.

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 forthcoming meetings of the GST Council, sources said.

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

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

A member of the GST Council had earlier said that though petroleum products were not kept out of GST, their inclusion in the regular tax system may have to wait at least for a year more by when the revenue impact of GST due to Covid-19 is completely eliminated.

The revenue situation of GST this year is not healthy, as Covid induced lockdowns had stopped economic activity completely pushing down GST collections in the months of April-June. The slowdown could build some resistance against any move to forego further revenues by the states by way of lower taxation in the oil sector.

The government is hoping that GST collections, which crossed the Rs 1 lakh crore mark again, will remain above this level for the rest of the year and ahead. This should give room to states to agree on a phased introduction of petro products under the indirect tax fold.

Jet fuel's inclusion in GST 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.

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

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

(To download our E-paper please click here. The publishers permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

Free Press Journal

www.freepressjournal.in