GST to lower fuel prices?

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With the fuel prices soaring, citizens have been feeling the brunt of it given the already tensed scenario with the pandemic and economic crisis. The prices of fuel have risen exorbitantly, over the last few months that has impacted the prices of commodities and living standards across the nation. A large number of people depend on fuel consumption, be it directly or indirectly, meaning that even the slightest changes in its prices have a lasting effect on the populace. Notably, the opposition and the people have been complaining about the rising fuel prices. Some even questioned the taxing process over fuel and the government’s sincerity in tackling the fuel price rise issue. In India where fossil fuel is the primary means of energy consumption, be it petrol, diesel, or LPG; the rise in crude prices have wreaked havoc for an already limping economy. Nevertheless, after the signs of respite in the past few weeks given the global crude oil developments and upcoming assembly polls in some Indian states, it seems that some measures to check the rise may be taken by the government.

Taking steps in the direction, the government has called for a crucial ministerial-level meeting of the GST council on Friday. This is scheduled to consider bringing petroleum products under the GST regime. If there is an agreement to do so, it would be a great relief for the people, even if the rate is pegged at the highest bracket of 28 per cent. This is because of the fact that the government has been using fuel tax as a cash cow. The Centre and state governments are equally to blame for this. However, the state governments are more bent on avoiding bringing petroleum products under GST, the reason being they end up being the biggest losers. The rising fuel prices have caused concern to everyone including the Reserve Bank, which cautioned against its adverse impact on household incomes, already under strain due to a sequence of events beginning with the lockdown. In fact, the RBI recently called for ‘urgent’ cuts in fuel prices, and cited inflationary pressures as a matter of serious concern, prompting it to suggest a reduction in taxes to keep prices under check.

On the other hand, Kerala’s Gandhi Darshanvedi filed a petition at Kerala High Court complaining about huge differences in the prices levied in different states and urged for uniform rates. On this, the court asked the Centre to take a decision within six weeks. Notably, the government’s high revenue dependency on fuel is acting as a deterrent to a reduction in prices. Another major hurdle in bringing petroleum products within the GST regime is the complication introduced by the nature of GST as a consumption-based tax, which means that the revenues would accrue to states where the fuel is consumed rather than where it is produced. As for the union government, the INR32.80 per litre excise duty on petrol and INR31.80 on diesel, made up of various cesses, is entirely for itself to keep, as this is not shared with the state governments. Under GST, all revenues shall have to be split 50:50. Now, if the council decides to effect the change, it will be a landmark move no doubt. One that will have far-reaching implications for government finances while providing a big boost to household incomes.

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