Let’s first answer why not bringing Petrol and Diesel under GST purview when the Central government can easily get it cleared.
1) It’s very easy and low cost requirement to collect taxes on petrol and diesel than income tax and others.
2) There is very low tax revenue leakages on this items.
3) Excise and VAT laws are not that much transparent, current effective tax rate is around 100% on this items.
4) It will be a fiscal blunder if taxes gets reduced, fiscal deficit will increase and which in-turn will harm more the Indian economy.
5) Due to US sanctions imposed on Iran (one of our major importer) which is going to end on November. So also government is following wait and watch policy.
6) In the current system State has power to levy tax on this item as per their will and such will stop under GST. Further, current system helps state government to maintain tax buoyancy within their state.
Next question, Will bringing petrol and diesel under GST will make prices go down?
Answer is BIG NO
But then why every news channel and politicians says that this will bring down the prices.
1) Rate difference: At present the tax rate is 100% whereas in gst highest it’s 28%. The missing point is that under GST there is Cess also. So therefore the government has full power to exceed this 28%. Government needs to be revenue neutral so there is no doubt cess would not be levied on this items.
2) Blocked GST credit concept: Under this GST concept on few items credit is not allowed even if tax has been paid on input. People think that they will be able to take credit of tax paid on this items but government is too much clever to not allow such credits.
In my view, asking to bring petrol and diesel under GST is just a political gimmick. What seriously the government would have done is to maintain price stabilization fund, alternate fuel solution and boosting exports to keep exchange rate down.