GST: Some good news and some bad

It is most welcome that the Centre and the states have reportedly agreed to include the major head of petroleum products in the proposed integrated goods and services tax ( GST) regime.


The move should put paid to the perverse practice of high indirect taxes on petro-products complete with tax on taxes right along the value chain — which hugely distort their pricing, result in tax inefficiencies across the board and, given the massive volumes in oil, grossly misallocate resources and funds.

The way ahead, clearly, is to modernise the indirect tax regime for petro-goods, which is really a glaring anachronism from the days of mindless, pre-reform controls when it was par for the course, say, to tax oil products to the hilt and muddle along with a very narrow indirect tax base.

It is true that in recent years, the levies on petro-goods have moderated, particularly at the Centre, although anomalies remain, like the special excise duty on petrol. And the cascading effect of tax on taxes remains very much in place.

We clearly need a comprehensive value-added tax regime for oil products, with tax payable only on the value added in each stage of production, distribution and sale. Such a tax policy should rev up efficiencies in logistics and transport and would be very much in keeping with global practice. The mature economies with high taxes on oil products invariably have an integrated GST in place to efficiently provide set-offs for taxes already paid.

We need such a system as well. Meanwhile, the new chairman of the forum of state finance ministers wants octroi tax out of GST. But this would merely add to the rigidities, delays and myriad corrupt practices. The whole idea of GST is to overhaul transactional information and transparency and we need the widest possible GST base.