India's GST Saga: Why Petrol, Diesel, and Liquor are Excluded and the Impact on Black Money

The debate over whether to include petrol, diesel, and liquor under the Goods and Services Tax (GST) in India is intricately linked to the economic and political landscape of the country. With 24 states having their own present systems, the decision to impose GST on these commodities has been a contentious issue.

Introduction to GST and Current State of Affairs

The Goods and Services Tax (GST) was introduced in 2017 with the vision of streamlining the tax structure and simplifying tax administration. However, the implementation has been fraught with challenges. One prominent issue is the exclusion of certain goods like petrol, diesel, and liquor from the GST regime. The central government, which has the authority to impose GST, is not including these items in the tax net. This decision has raised significant questions about the effectiveness of GST in combating black money and corruption.

The Revenue and Corruption Equation

The revenue generated from petroleum and liquor is a substantial part of the state and central government's finances. In many states, these taxes are the largest sources of revenue, especially for state governments. The introduction of GST was intended to bring about systematic benefits and better governance. However, the concern is that implementation of GST on these items could lead to a reduction in revenue, which is a major deterrent for state governments.

Additionally, the argument is made that the inclusion of fuel under GST would merely transfer the tax burden to the end consumer without addressing the larger issue of corruption and black money. The main sources of revenue for both state and central governments are derived from taxes on fuel, which are used for various corrupt activities and party funding. Excluding these items from GST could help in reducing the leakage of funds into black money channels.

Economic Considerations and the VAT Scenario

The highest rate slab under GST is 28%, which is approximately half of the current taxes on fuels. However, businesses dealing in fuel have raised concerns that the move would result in a loss of revenue. Under the current VAT system, businesses are allowed to claim input tax credits, which would not be possible under GST if fuel was included. This could lead to a decrease in overall revenue for state governments.

Political and Administrative Hindrances

Political and administrative factors also play a significant role in the decision to exclude petrol, diesel, and liquor from GST. Each state government has its own tax structure, and the central government cannot impose GST without the approval of the states. The GST Council, which is the decision-making body, has not come to an agreement on including these commodities in the tax net.

There is a perception that excluding fuel from GST is a strategy by states to avoid losing revenue and to keep the power to tax in their hands. It is seen as a convenient way for the states to challenge the central government and hide their hypocrisy of misleading the public.

Conclusion and Future Prospects

While the inclusion of petrol, diesel, and liquor under GST is unlikely due to the current state of affairs, it is crucial to address the larger issues of corruption and black money. The debate over the implementation of GST highlights the complexities of the Indian economy and politics. As the country moves towards a more unified and efficient tax structure, the concerns and criticisms surrounding the exclusion of these items must be addressed to ensure the success of GST in improving the economic landscape.

In conclusion, the decision to exclude petrol, diesel, and liquor from the GST regime is a complex issue that involves revenue generation, political power dynamics, and the fight against black money. The road ahead for GST implementation in India is likely to be challenging, but it is a necessary step towards a more transparent and efficient tax system.