Petroleum under GST ambit, but alcohol & tobacco out for now

FM also agrees to most of the technical demands of the states

The Centre and the states have agreed to keep petroleum under the Goods & Services Tax (GST), while alcohol and tobacco—major sources of tax revenue—might stay out of the new tax regime.

Finance Minister P Chidambaram has also agreed to most of the technical demands of the states, paving way for GST rollout, his advisor Parthasarathi Shome told Business Standard.

The Constitutional Amendment Bill, tabled in Parliament in March 2011, had proposed to keep petroleum, natural gas, diesel, aviation turbine fuel and alcohol for human consumption outside GST. The revised Bill might not mention about inclusion or exclusion of these items in the law itself. This would help the Centre and the states on subsuming or exempting these items from GST purview in the future.

“Petroleum was out earlier. That concerned me because so much of the needed information goes out of the GST system. But now, it would be in the base. Tobacco and alcoholic products are still out, and if we exclude them in the Constitutional Amendment Bill itself, then it would be difficult to bring them in later. So let us see where the Centre and states come out on that,” said Shome.  

Petroleum, alcohol and tobacco contribute significantly to the revenue kitty. While alcohol is under the States’ List, tobacco products like cigarettes, bidis, chewing tobacco and gutkha are taxed by the Centre.

The Centre initially wanted that since both alcohol and tobacco are demerit goods which are considered harmful for health, these should be kept under GST, with the states getting the power to levy additional excise on alcohol and the Centre getting the same power for tobacco, but the states opposed it.

“Looking at it internationally, the usual practice is that you can keep them in. You can keep a low Value Added Tax (VAT) rate for them and then have higher selective excise rates based on turnover. That would have been better because then you have information within the GST system on such products and also get additional revenue,” Shome explained.

He added most of the technical elements of the structure of the GST have been agreed upon and except for one or two lacunae, the overall structure looked good.
 
“I won’t say it is the most ideal structure of GST but, if I compare it with Canada or Brazil, already India has come to a point which is not worse than those countries. In that sense, we are better than other fiscally-federal VATs or GSTs prevalent in the world, that is, those that cover national and sub-national levels of government,” he said.