Why Fuel Should be brought under GST ?

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If the government includes transportation fuel under the GST, and applies the highest tax slab of 28 per cent, the petrol and diesel price would be reduced by Rs 26.9 and Rs 15.4, respectively.

Break-up of petrol prices in Delhi
ElementsUnitBefore GSTAfter GST
Cost & freight price on moving average basis of crude oil$/barrel86.6186.61
Average exchange rateRs/$67.5167.51
Price charged to dealers (Excluding excise & VAT)Rs/Litre37.8937.89
Add: Excise dutyRs/Litre19.480
Add: Dealer commission (average)Rs/Litre3.633.63
Total61.0041.52
Add: VAT applicable for Delhi @27%Rs/Litre16.470
Add: GST at peak rate of 28% (assumption)0.0011.63
Retail selling price in DelhiRs/Litre77.4753.15

 

Let us see how GST works assuming the peak rate of 28 percent is what mollifies the Opposition besides suiting the central government.

At present the Delhi government imposes 27 percent VAT on petrol. The selling price to dealers is Rs 37.89.

To this, when excise of Rs 19.48 is added besides dealer commission of Rs 3.63, it makes the petrol bunk price Rs 61 per litre.

The 27 percent VAT on this results in a final price of Rs 77.47 per litre to consumers.

Break-up of petrol prices in Mumbai
ElementsUnitBefore GSTAfter GST
Cost & freight price on moving average basis of crude oil$/barrel86.6186.61
Average exchange rateRs/$67.5167.51
Price charged to dealers (Excluding excise & VAT)Rs/Litre37.8937.89
Add: Excise dutyRs/Litre19.48
Add: Dealer commission (average)Rs/Litre3.633.63
Total61.0041.52
Add: VAT applicable for Mumbai @ 39.78%Rs/Litre24.27
Add: GST at peak rate of 28% (assumption)0.0011.63
Retail selling price in MumbaiRs/Litre85.2753.15

Dealer price remains the same at Rs 37.89. Add the same dealer commission of Rs 3.63. The petrol bunk price before GST would be Rs 41.52.

On this GST of 28 percent would lead to a tax revenue of Rs 11.63, thus making for an affordable consumer price of Rs 53.15.

Thus, the consumer will save Rs 22 in Delhi when fuel is brought under the GST.

Likewise, the consumer in Mumbai will save Rs 32 per litre of petrol as current value added tax (VAT) is much higher at 39 percent compared with 28 percent GST.

The GST eschews tax on tax besides reining in states’ greed in fixing rates whimsically.

Mumbai and Kolkata consumers would heave a great sigh of relief. Indeed, the whole nation would.

One nation one tax and one price would become the reality for this arguably most sensitive item on one’s purchase basket and budget.

If unanimity eludes the Narendra Modi government at the GST Council meeting convened for this purpose, let the bigoted Opposition be exposed soon after they forged an anti-Modi front in Bangalore a few days ago and flaunted it in full view of TV cameras.

The next course of action, albeit less desirable, would be for the BJP-ruled states to reduce their own VAT on petroleum products so that the consumer gets to pay the price he would have under the GST regime that alas was not to be due to Opposition intransigence.

This would shame the Opposition like nothing else.

The GST is transparent whereas the proposed windfall tax would be convoluted with no back-to-back relationship between the tax and it being passed on to the consumers.

There is no guarantee that it would ever be passed on to the consumers.

Even if there is a binding guarantee through law, finding wherewithal for its seamless and automatic transmission to consumers is well nigh impossible.

Content Credit : s murlidharan

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