Rising fuel prices and GST

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“Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree.”

– Martin Luther

Political parties along with a section of economists of late are after union finance minister Arun Jaitley and petroleum minister Dharmendra Pradhan, blaming them for keeping the prices of petrol and diesel high, to make up for the revenue deficit and ‘looting’ people at large. The finance ministry’s current economic survey reveals that oil prices are falling globally. International crude oil prices may have halved since the NDA-II government took charge. But the consumers have not gained. This is due to a wrong taxation policy. Has the oil sector been treated as government’s cash cow? One may be surprised to know that petrol and diesel prices in India are among the highest in the world and leaving that apart, there is a big variation in prices from state to state and city to city. The government had to take a call between a popular decision and good economics as far as pricing of fuels is concerned.  A separate taxation policy is, as one sees, an unpopular decision as it is creating unrest among urban voters, who are paying through their nose to buy petrol and diesel. But a section of economists think that it is a good economic strategy to keep the prices of petrol and diesel higher, especially when the country is reforming the energy usage pattern.  Union Petroleum minister Dharmentra Pradhan recently ruled out any government intervention to disrupt the daily revision in petrol and diesel prices saying that the reform will continue.

In the past, the UPA government used to cut taxes to soften the blow when there was a spurt in oil prices to minimize the impact on consumers, particularly the common man. Though Pradhan claims that daily revision immediately passes on the benefit of reduction in international oil prices to consumers, this somehow did not seem to have happened. Modi government has not been able to bring down oil prices even when global crude oil prices are down because excise duties are hiked substantially.

The price of petrol and diesel always impacts the budget of almost every Indian household in various ways. So something needs to be done to bring succour to common people.  Petroleum products, along with sales of alcohol, real estate and electricity are kept out of the game-changer Goods and Services Tax act and these products are still governed by VAT system. The lackadaisical approach of the government towards fuel prices has made the call to bring petroleum products under the ambit of GST. Rolled out in July, this will not only bring about uniformity in rates but also some stability in the duty structure. Under GST, the petrol and diesel prices under the present circumstances will become substantially cheaper. The GST, even at its highest slab of 28%, would substantially lower the current tax burden on fuels. But bringing petroleum products under GST involves politics. Under the GST Act, decision to bring petroleum products under new taxation regime can only be taken by the GST council, which has got strong representations from states. Now, the moot question is: will these states let the hen laying the golden egg go?

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