Clamour grows to bring petroleum under GST; J&K fires 1st salvo

Srinagar: Now that GST rates for over 500 services and 1,200 goods have been finalised, the clamour to get petroleum products in the Goods and Services Tax (GST) net is growing, with the first salvo being fired by Jammu and Kashmir.

While products like kerosene, naphtha and LPG will be under the ambit of GST, five items crude oil, natural gas, aviation fuel, diesel and petrol have been excluded from the basket for the initial years. 

In an interview to PTI, J&K Finance Minister Haseeb Drabu said the five excluded petroleum products have to be brought under the GST "otherwise what is the point of "the biggest shakeup in the nation's tax system since independence.

"Why dilute the structure, if you have moved and created an architecture, now don't destroy it by making all these silly things (of excluding products)".

These comments echo the views of various experts who want these products included in the GST right from the start. Drabu, who last week hosted the 14th meeting of the GST Council, which decided on the tax rates for a plethora of goods and services, said the rollout of the new indirect tax regime is in the last lap now.

"I think July 1 (for rollout of GST) is doable," he said, adding that the twin issues of information technology that will support administration of the new tax system, and awareness among tax payers need to be addressed.

"We have moved from a system of assessed to self assessment. It's a huge change. So awareness is required. Information technology will have glitches, I mean any system will have issue. But I think July 1 is doable," he said. He said there wasn't enough time as Constitutional Amendment passed by Parliament, and ratified by at least half of the state legislatures, provide for moving to the new tax system by mid-September.

"You have to have a deadline. You do not have enough time, because by September 18 you run into a constitutional crisis."

The five petroleum items have been kept out of GST as they are considered cash cows, giving both the Centre and states bulk of their tax revenues.

But keeping them out has created compliance issues including taking input tax credit. For example, a refinery producing diesel and petrol would pay GST on the procurement of plant, machinery and services but that tax would not be creditable against excise duty and VAT levied on petrol and diesel.

Drabu said GST is perhaps the most significant tax reforms post independence and will revolutionise the entire indirect tax system. Over the two-day meeting, the GST Council fixed rates for more than 500 services and 1,200 goods by slotting them into GST's broad rates of 5, 12, 18 and 28 per cent.

This was culmination of a 10-year effort to streamline India's archaic tax system and unify the nation of 1.3 billion people into a common market with a single national sales tax. Drabu said these tax rates are in line with the new emerging consumption basket of the new India.

"And I did state that one of the things that the Council should recommend is now ask the CPI (Consumer Price Index) to do a new survey and get a new basket of commodities and then you will see a much realistic inflation.

"So the link between GST and inflation might actually get much more confident and might dampen the whole thing," he said. He said buoyancy in taxes would compensate for any loss of revenue from GST.

The buoyancy, he said, will kick-in from second or third or may be fourth year when efficiency gains will happen.

"The other thing which is not being adequately recognised is that GST will push the direct taxes also," he said, adding that more money in hands of businessmen or companies would result in higher income or corporate taxes.