Skip to main content

FM asks states to cut VAT on petro products

FM asks states to cut VAT on petro products
Finance Minister Arun Jaitley has written to all Chief Ministers urging them to reduce Value Added Tax (VAT) on petroleum products used in the manufacture of goods as the current system was leading to cascading of taxes on such goods under the Goods and Services Tax (GST) regime.
Currently, crude oil, natural gas, petrol, diesel and aviation turbine fuel are out of GST purview. All other petroleum products fall under the new indirect tax.
“The letter by Finance Minister highlights a concern being raised by the manufacturing sector in the country regarding the rise in input costs of petroleum products happening on account of transition to Goods and Services Tax regime,” the Finance Ministry said. “In the post-GST scenario, manufactured goods attract GST while inputs of petroleum products used in the manufacturing attract VAT and, therefore, it would lead to cascading of taxes.”
“These products are a principal source of revenue for the states, so that’s why they were kept out of GST,” Anish De, partner and head, strategy and operations advisory (infrastructure) at KPMG in India. “There was always a concern about input tax credits. 
There is logic in what the Finance Minister has said since it was pointed out earlier that there would be an inflationary impact. The question is whether the states will abide by it. 
The financially better off states might agree, but others might not.”
The view also is that this cascading of taxes due to the applicability of VAT would affect natural gas companies more significantly, since the alternatives to natural gas, such as naphtha, fuel oil and LPG are under GST.
“When a company sells piped natural gas, it is under VAT,” K. Ravichandran, senior vice president, group head — corporate sector ratings at ICRA said. “It cannot be set off under GST, so it becomes an additional cost. But alternatives to natural gas come under GST and so input credit is available.”
The overall view is that it would eventually be more practical to include all petroleum products under GST.
“It would have been better to include petroleum in GST,” Mr.De said. “Eventually the solution would be to include it all in GST, there is no other practical way.”
“The revenue foregone by bringing natural gas under GST would be minimal, but the effect on companies is significant,” Mr. Ravichandran added. “I don’t think states will reduce VAT on petrol, diesel, and ATF since they are major revenue sources.”
The Economic Times, New Delhi, 19th August 2017


Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Coffee-Toffee, the GST Debate Continues

Hundreds of crores of rupees in the form of taxes ride on the exact categorisation of products Is Parachute hair oil or edible oil? Is KitKat a chocolate or a biscuit? Is a Vicks tablet medicament or confectionery? For the taxpayer and the tax collector, this is much more than an exercise in semantics -hundreds of crores of rupees ride on the exact categorisation.
As the government moves closer to rolling out the goods and services tax (GST) on July 1, many such distinctions are being debated so that no ambiguity remains. Not just that, the government is revisiting old tax cases that were lost over product categorisation, according to people with knowledge of the matter, presumably with a view to making sure that revenue collections can be maximised. “In the past, several tax officers had challenged some of the product categorisations, including those in the retail segment, but lost out in court or at appellate level,“ said one of the persons. “Now we have a chance to go ahead with speci…

Deposit gush:-CA Institute Bats for Special Audit