GST: Bringing Petrol, Diesel Under GST Won’t Lower Prices, Says Hasmukh Adhia

Bringing petrol and diesel under the Goods and Services Tax won't reduce prices if the tax rates are kept revenue neutral and governments don't sacrifice revenues, said Finance and Revenue Secretary Hasmukh Adhia.

“We must delink crude oil price increase from GST… GST isn't necessarily the solution to that,” Adhia told BloombergQuint in an interview.

According to Adhia, taxing petrol and diesel and giving states the power to levy additional taxes may not have real benefits. “These are some options that can be discussed when the GST Council desires to include petrol and diesel [under GST].”

Earlier on Friday, Bihar Deputy Chief Minister Sushil Modi said petrol and diesel can be taxed at 28 percent and states will get to levy an additional tax, keeping the retail rates at almost the current levels.

Currently, value added tax is levied by states on fuel while the Centre imposes excise duty. Adhia said having a third tax would involve revenue loss to governments to the extent of input tax credit that will be eligible to manufacturers. “Adding the third one means input tax credit will be available to manufacturers, so there will no cascading effect for them, so to that extent, there will be revenue loss.”

‘GST Revenues To Stabilise By Year-End'

Adhia said GST collections will stabilise by the year-end and that GST monthly revenues will be below the Rs 1-lakh-crore-mark in the first few months of the current financial year. He expects revenues to rise significantly in the subsequent months. The reason, according to him, would be the rise in consumption during the festive season, which will bring average monthly GST collection to Rs 1 lakh crore.

According to government budget estimates, it will collect Rs 6.03 lakh crore in Central Goods and Services Tax, while the integrated GST and compensation cess revenue is pegged at Rs 50,000 crore and Rs 90,000 crore, respectively.

Adhia said although there's a need to further rationalize GST rates, it isn't immediate. The government must look into costs involved and rationalize when revenues stabilise, he said. Currently, there are no major tax rate reduction proposals the government is planning, he added.

Watch the full interview here: