GST on petrol: The unfinished business

Finance minister Arun Jaitley’s statement in the Rajya Sabha on Tuesday that the government is in favour of bringing petroleum products under the ambit of the goods and services tax (GST) comes as no surprise. This is not the first time this government has spoken of it; back in September, petroleum minister Dharmendra Pradhan had made similar noises.

The problem now will be the same as it was then: strong resistance from the states. Value-added tax (VAT) on the five petroleum products that are out of GST—including petrol and diesel—is the trump card of the states. The revenue, which consists in some states of a specific levy as well as an ad valorem rate, makes up a major chunk of their finances.

The wide variance in VAT between states, the messiness of having some petroleum products under GST and not others and the potential boost to a number of sectors by bringing all petroleum products under GST make the switch a good idea. But convincing the states—even with 19 states to the BJP’s credit, this won’t be easy—and managing the revenue loss remain major hurdles.


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