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Petrol and diesel cannot be brought under GST just yet’

As Bihar’s Finance Minister, and the chair of an Empowered Committee of State Finance Ministers on GST, Sushil Kumar Modi has been associated with both the formulation and the implementation of the indirect tax regime for long. He now heads a panel of State FMs on GST discounts for digital payments. In an interview with BusinessLine, he spoke of the need to lower the levy on items such as sanitary napkins and biscuits, and also his views on the one-year-old GST regime. Excerpts:
On one year of the GST and the stability of the new tax system
The performance has been better than the expectations. There is stability and whatever apprehensions there were during the initial days, have waned. People have accepted the system and it has, more or less, stablised.
On formalisation of the economy post-GST
GSTN has over one crore registered entities while there were not more than 70 lakh entities under the previous tax system — over 30 lakh entities are new entrants. If you talk about revenue, please remember that the e-Way bill was introduced only from April. We do not have a system of cross-verification. Despite this, we managed to have an average monthly revenue of ?90,000 crore. I am hopeful that with the e-Way bill, the new return forms, the facility to verify input tax credit and settle IGST, the revenue collection during 2018-19 will be much better. Also, this will be indicative of greater formalisation of the economy.
On fewer slabs, and the lowering of rates on some items
I feel we should wait for some time. But what can be considered is removing some goods from the 28 per cent category and placing them in the 18 per cent category; and moving some others from the 18 per cent to the 12 per cent category. Take the example of biscuits, which falls into the 18 per cent category. Another item of common use is the sanitary pad, which attracts GST of 12 per cent. There are many such goods of mass consumption with little revenue implication. Higher rates on such goods also create a bad [public] perception. Hence, the GST Council should consider lowering rates for such goods. You must appreciate that it will be difficult to rationalise the entire structure as of now.
On the experience of consumer States such as Bihar
Prior to the GST’s introduction, the average standard rate of taxation was 14 per cent. For example, it was 14.5 per cent for Bihar, and 13.5 per cent for many States. States were earning 70 per cent revenue from this standard rate. Now, this rate has come down, to 9 per cent on an average. So the States are earning less. At the same time, States are not getting that much revenue from services, which they should get additionally as they are not well-equipped to keep an eye on services.
On bringing petrol and diesel under GST
Petroleum companies will undoubtedly get input tax credit once these products are part of the GST. They will have some advantage, which means some impact on prices. From what I know, throughout the world, States are empowered to levy taxes over and above the GST.
States get up to 40 per cent of their revenue from petroleum products and if there are losses after bringing them [on a par] with the GST, neither the Centre nor the State can absorb such losses.
I don’t think, at least in the near future, petroleum products will be brought under GST. First, we need to be more stable with GST, and then we have to think about bringing natural gas and ATF (aviation turbine fuel) under GST.These will be the first to come under GST.
It is not time to bring petrol and diesel under GST. Until and unless revenue growth is more than 14 per cent, nothing can be thought about. It is not correct to say that the tax rates on petrol and diesel have a big impact on their prices.