Not including petroleum against spirit of GST, say experts

The exclusion of petroleum products, though, will be for a limited period, till states reach comfortable revenue levels.

"We will not call it ‘Goods and Services Tax’ if petroleum and other related products are not in its ambit."

This is the unanimous opinion of tax experts and producers on non-inclusion of petroleum products in a GST.

The Centre on Tuesday evening reached a consensus with states on GST by not including petroleum products and by compensating them for loss in revenue due to the reformative tax.

The exclusion of petroleum products, though, will be for a limited period, till states reach comfortable revenue levels.

The constitution amendment Bill on a national GST is likely to be tabled in the current session of Parliament. However, the government is not confident of passing the Bill this session.

“We are surprised the Centre was not able to convince states on the key issue of petroleum,” said an industry participant who did not wish to be named.

GST is a value-added tax that is to replace all indirect taxes levied on goods and services by India’s Central and state governments. It aims to be comprehensive for most goods and services.

The intent of GST was to have an efficient indirect tax regime without distortions, and to minimise the cascading effect created by multiple taxes in the existing system.

Including petroleum and related products in the GST ambit would have gone a long way in achieving that objective, as this is one product that involves various goods and services from stages like exploration, production, refining, etc.

The input tax credit from these under GST could have been utilised.

That would have led to a substantial price advantage for petroleum products and had a critical impact on everyday life,” said Sriram Govind, senior member (international tax practice), Nishith Desai Associates.

States, which earn over 50 per cent of their revenue from taxes on petrol and other petroleum products, wanted these to be out of GST, so they could continue to levy different tax rates on these products.

At present, the state laws do not allow companies to avail of input credit for petroleum products.

Meanwhile, there also are sections of the market focusing on the positives in exclusion. They say if the condition has not improved, it has not deteriorated, either.

“Not including petroleum in GST is accommodation of state government’s fear of losing revenue.

"By this provision, the condition has not improved for producers in the economy.

But from the point of view of people in business, the condition has not deteriorated either,” said Vivek Mishra, executive director for indirect tax practice, PricewaterhouseCoopers.

Parthasarathi Shome, chairman of the Tax Administration Reform Commission, had earlier said no tax policy designer could call it GST if petroleum products were kept out of it.