If petroleum products are brought in to the ambit of GST, Could it bring the benefits of International oil price cut to the end consumer? Also analyse the effect of this measure towards government’s fiscal deficit.
For reference - Business Standard
IAS Parliament 7 years
Current pricing regime
· In India, the deregulation of petrol and diesel pricing, in 2010 and 2014 respectively, caused fuel prices to be determined primarily by the forces of supply and demand rather than input costs.
· It is now supplemented by the daily pricing regime which will align the price of petroleum products in line with International Oil demand on a daily basis.
· But, even now, people of India doesn’t obtain the benefits of reducing oil prices in International market.
Reasons for increasing oil prices
· The governments’ used this favourable condition of oil price slump to reduce their fiscal deficit by increasing the taxes.
· Excise duty and Value added taxes are the main perpetrator in this scenario.
· Five Petroleum products have been temporarily been kept out of GST.
· If these petroleum products are brought in to the ambit of GST, even as its highest tax slab of 28%, would substantially lower the current tax burden on fuels.
Ecological perspective
· If we reduced the tax burden on fuels by including it in GST, it will help people in so many ways.
· But, it also discourage peoples’ to use public transports instead of a private vehicle.
Fiscal deficit burden
If Petroleum products being included in to GST net, it will drastically reduce the government’s revenue resulted in high fiscal deficit which will initiate a chain reaction finally will end in reduction of economic growth.
Governments’ point of view
· Government has so many obligations of funding massive highways, railway modernisation, rural sanitation, drinking water, primary healthcare and education etc.
· For all this purpose, governments’ revenue is very imperative. So, the government justifies its move of increasing tax rates.
· But, government have to take into consideration that, continuous dependency on excessive tax system will ultimately lead to failure. Because, if International oil prices rises, it will be a great burden for government to adjust to fiscal deficit targets.
