INTRODUCTION

The Government of India introduced the Goods and Services Tax (GST), with the aim of creating a unified tax structure across the country. It replaced a complex system of multiple indirect taxes imposed by the central and state governments. Initially, GST had multiple tax slabs (5%, 12%, 18% and 28%) along with additional cess on certain goods to accommodate various goods and services. The GST brought several changes and benefits to the Indian economy, including reduction in tax rates, increased revenue, introduction of New Returns Filing System (NRS), elimination of cascading of taxes, reduced compliance burden etc.

There are several items which are excluded from the good and services included under GST such as petroleum, natural gas and airline tribunal fuel. Since the rolling out of GST, petroleum, AFT (airline tribunal fuel) and natural gas have been topics of debates and discussions whether these items must be kept under the ambit of GST and if yes then under which slab of GST. After several meetings and discussions, the GST council has yet not been able to reach a final conclusion to these unanswered questions.

1. REASONS WHY PETROLEUM, NATURAL GAS AND AIRLINE TRIBUNAL FUELS ARE NOT INCLUDED UNDER GST

Section 9 of the CGST Act states that,"GST on petrol crude and diesel, GST on motor spirit, natural gas and aviation turbine fuel shall apply from a date that government will notify. The government has not notified any date for levying GST on petroleum products." [2]. Further, Article 279 A of the Indian Constitution mentions that the GST Council shall have the authority to decide the date of implementing GST on petrol in India. The taxation on petroleum products like petrol, natural gas, diesel and ATF still remains governed by the earlier taxation systems, and they do not fall under the GST framework. The GST Council, which is the decision making body regarding GST in India, had not brought petroleum products under the GST regime due to various reasons, and mainly because of revenue implications for both the central and state governments. There are several reasons why petroleum products such as petrol, diesel, natural gas and aviation tribunal fuel are not included under the ambit of Goods and Services Tax (GST).

1.1 Petroleum

The petroleum products contribute significantly to the tax revenue of both the central and the various state governments. Bringing them under the GST regime could potentially result in revenue loss for both the governments, as GST rates are comparatively lower compared to the existing taxes on petroleum products. The centre charged excise duty on them which was approximately Rs. 19.48 in September 2018 on petrol and approximately Rs. 15.33 on diesel. In addition to that, VAT is also charged by different state governments and union territories. Apart from these taxes , a dealer's commission is also added on these item. Petroleum companies like Indian Oil, Hindustan Petroleum pay commission on every litre of oil they sell.[1]

Petroleum products have very complex pricing structures and are subject to frequent price fluctuations due to global factors such as crude oil which ultimately leads to supply demands prospects and risk of markety disruptions.The issue of including petroleum products under GST involves political considerations as it affects both the government revenues and consumer prices. There might be differing opinions among states and the central government regarding the timing and implications of such a move. Therefore, The decision to bring petroleum products under GST requires consensus among both the central and state governments, as it directly impacts their revenue. Any change in the taxation structure needs unanimous approval from the GST Council, where states have a significant say in policy decisions.

Petrol and diesel are currently being taxed at approximately 57%. Under GST, a maximum of 28% would be charged under the current slab and center would get a maximum share of 14% which is far below the rate of VAT and excise duty charged.This will result as a mojor setback for bringing petrol and diesel under GST. There will be a huge loss of revenue of Central as well as all the state governments.Petroleum products form a major source of income for the government and the government cannot take risk of reducing the amount of taxes it recieves from its biggest contributor. Representatives from various governments werte ready on one condition that the central government will compensate for the loss in revenue due to GST on petroleum.Another reason for not bringing petrol and keeping the prices a bit high is to control the amount of consumption of fuels.[1]

Bringing petroleum undewr GST would boost the rate of inflation in a harmful manner as the rate of GST on major other items has been reduced which led to inflation, a furthur reduction in the prices of petrol would furthur, affest the rate of inflation in the economy.Petroleum products, especially petrol and diesel, have a direct impact on the cost of living and transportation costs. Shifting their taxation to a GST structure could alter the final consumer prices, which might have political and social implications, particularly considering the widespread use of these products.

1.2 Natural Gas

Natural gas is not included in the GST framework despite India having significant reserves. It accounts for just 7% of the country's energy consumption. While the central government doesn't impose excise duty on natural gas, states charge VAT ranging from 13% to 20%. Additionally, the central government levies a 20% excise duty on Compressed Natural Gas (CNG).

The main reason behind excluding natural gas from GST is the potential revenue loss for the government. Placing it at 12% GST would reduce revenue, while setting it at 18% would make it more expensive than the current tax rates. Moreover, states like Andhra Pradesh, Rajasthan, and Maharashtra, possessing major natural gas reserves, oppose GST imposition. They fear a uniform tax rate would disadvantage gas-producing states. As there was no decision made by the GST Council or any government bill passed to include natural gas in GST, it's expected to remain exempted from GST in the near future.

1.3 Airline Tribunal Fuel

ATF, known as Airline Turbine Fuel, remains excluded from the GST framework despite persistent requests from airline companies. They argue that bringing ATF under GST could save them substantial taxes, ranging from 3000 to 5000 crores, and allow them to claim input tax credit. There was a proposal suggesting a 28% GST rate on airline fuel. Presently, Indian states levy sales taxes of up to 30%, along with a 14% excise duty, making it the costliest airline fuel in Asia. For instance, at Delhi's Indira Gandhi International Airport, ATF incurs approximately 37% taxation, compared to just 6% in Singapore. ATF constitutes a significant portion, around 35 to 40%, of airlines' operational costs.[3]

Reducing taxes on ATF could potentially stimulate air travel, compensating for the loss in tax revenue. India is witnessing rapid growth in aviation traffic, with consecutive months of 20% passenger growth in 2018. Alternatively, increasing GST on air travel from the current 5% in economy class and 12% in business class to 12% and 18%, respectively, might bolster tax collection but could deter travelers. This move could adversely impact the government's UDAN project, particularly affecting smaller airlines and chartered plane companies reliant on their customer base, unable to sustain short-term revenue losses. In contrast, larger airlines like Global Aviation Private Ltd. and Jet Airways Private Ltd. could manage such revenue shortfalls.

CONCLUSION

While the government hasn't clearly committed to including ATF in GST, officials and ministers hold varied opinions on this matter. The future status of ATF inclusion in GST remains uncertain. However, it's evident that petroleum and related products require flexible tax slabs under GST, necessitating regular revisions based on international market prices and government revenue collection.