Why keeping petroleum out of GST is bad news

'Whether or not GST will cause inflationary pressure is itself a moot question. If the exemption list and rate structure are properly designed, one can avoid having inflationary pressure.'

Petroleum being out of the  goods and services tax (GST) initially will create some anomaly as tax credit on some of the inputs to oil industry may not be given, said revenue secretary Hasmukh Adhia in an e-mailed interview. He tells Dilasha Seth that the Central Board of Excise and Customs (CBEC) is working out a plan to recast the organisational structure once GST is implemented. Excerpts:

You have said both the Centre and states will have administrative power to assess and scrutinise businesses. However, states want the sole power over entities with up to Rs 1.5 crore of annual turnover. Is there a solution to this tussle?

The issue of cross empowerment for the purpose of removing dual control will have to come up for discussion in the meeting of the GST Council. We will continue to make efforts with the states to arrive at a consensus on this.

There are fears that inflation will rise, at least in the short run, if the rates are not kept within 18 per cent. Is this fear justified?

Whether or not GST will cause inflationary pressure is itself a moot question. If the exemption list and rate structure are properly designed, one can avoid having inflationary pressure, but we need to watch inflation number after GST is implemented.

What are the key inputs the ministry has got over the draft model GST Bill?

We have received 40,000 pages of representations from various organisations mainly from financial services, information technology and transportation sectors. We are examining this and we will try to make changes in the draft law if required.

There are fears that the tax regime for the oil & gas industry will make compliance difficult. Products such as kerosene, naptha and liquid petroleum gas would be under GST’s ambit, while five items in the basket - crude oil, natural gas, aviation fuel, diesel and petrol - are excluded for the initial years. Do you plan to address this anomaly?

Yes, there would be some anomaly created because of the fact that the petroleum sector is out of the GST’s purview. Some of the inputs to the petroleum sector industry might carry GST burden, which can stay as accumulated duty which is not VATable. We will look at this issue in due course.

Can the Congress’ demand of capping GST rate at 18 per cent in the GST Act be met?

The rate and rate structure can only be based on facts and figures on the existing revenue of state and Centre, which are to be discussed in the GST Council.

At the moment, it is not possible to say ‘yes’ or ‘no’ to any such artificial number. The decision on rates will also depend on the list of exempt items, list of demerit commodities, etc.

Will there be rationalisation of workforce under CBEC to implement GST?

CBEC at present looks after Customs, Excise and Service Tax. In metropolitan cities, Excise and Service Tax Commissionerates are separate, but in other places the work of Excise as well as Service Tax is done by the same Commissionerate. The CBEC is working out a plan in which the organisational structure can be recast once GST is implemented.

Photograph: Adnan Abidi/Reuters