Will GST Council bite the bullet and bring jet fuel, natural gas under new tax regime?

Notably, the central government currently charges 14 per cent excise duty on ATF, while states charge up to 30 per cent sales tax or VAT. Odisha and Chhattisgarh levy 5 percent VAT while Tamil Nadu taxes ATF at 29 percent, Maharashtra and Delhi at 25 percent and Karnataka at 28 percent.

The GST Council is scheduled to hold its next meeting in New Delhi on July 21. The all-powerful tax body is likely to consider bringing jet fuel (ATF) and natural gas under GST ambit. When Goods and Services Tax (GST) was implemented on July 1, 2017, five commodities including crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) were kept out of its purview.

Headed by Union finance minister, the GST Council comprising representatives from all states and Union Territories, is holding its 28th meeting on July 21. The proposal to bring natural gas and ATF under the new indirect tax regime may come up for discussion, but it is not an easy task to adjust these two products in tax slabs of 5, 12, 18 and 28 percent.

Notably, the central government currently charges 14 per cent excise duty on ATF, while states charge up to 30 per cent sales tax or VAT. Odisha and Chhattisgarh levy 5 percent VAT while Tamil Nadu taxes ATF at 29 percent, Maharashtra and Delhi at 25 percent and Karnataka at 28 percent.

The purpose behind the GST is to keep the tax incidence of the Central and states' levies neutral, but in case of ATF this comes around 39 to 44 percent in states where the biggest airports operate.

Citing sources, a First Post report said that this essentially means that if ATF is taxed at a maximum of 28 percent, there would be a huge revenue loss. Therefore, a way out could be allowing states to levy some VAT on top of the peak rate.

Further, the sources say that the Centre and states have to agree to this, because adding 28 percent GST would mean an increase in price of fuel in certain states.

Combined levy of 39 percent at Delhi, which hosts the country's busiest airport, compares with just 7 percent VAT in Singapore.

In case of natural gas, the situation may lead to an increase in prices at consumers' end. Notably, the Central government does not charge any excise duty on natural gas sold to industries, rather it charges 14 percent excise duty on CNG. While states levy up to 20 percent VAT; Delhi has nil VAT but Gujarat levies 12.8 percent VAT, Bihar 20 per cent, Karnataka 14.5 percent and Maharashtra 13.5 per cent.

Sources told First Post that if 12 percent GST is levied on natural gas then it would lead to revenue loss to states, but at 18 percent, it would lead to a rise in the cost of production of power and fertiliser. In case of CNG, the fitment would be an issue, sources told First Post.

The council, however, is expected to announce another round of tax cuts on several items including sanitary napkins, handicrafts and handloom goods. According to reports, the GSTN is exploring the legality of imposing ‘agriculture cess’ on some luxury items, while most handloom and handicraft products and sanitary napkins could witness a tax cut.
Meanwhile, the Central Board of Indirect Taxes and Customs (CBIC) will hold the third tranche of its special fortnight drive from July 16 to 30 to fast track clearance of pending GST refunds of exporters.

In the previous two fortnights, the CBIC had reportedly cleared Rs 5,401 crore and Rs 7,635 crore refunds stuck with regard to Integrated GST (IGST) paid and input tax credit (ITC) claims.

In case of IGST refunds for goods exported out of India, the percentage of amount of refund claims disposed by CBIC is already more than 90 per cent, a finance ministry statement said. The FinMin asked the exporters and export organisations to take benefit of this opportunity to get their pending refund claims processed.

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