Petrol and diesel prices could come down to ₹75 and ₹68 respectively, if they are brought under Goods & Services Tax (GST), a report prepared by State Bank of India (SBI) has said.
In the latest edition of ECOWRAP, prepared by research team lead by group Chief Economic Advisor Somya Kanti Ghosh, nationwide prices of ₹75 and ₹68 have been arrived on the basis of various assumptions.
These include crude price at $60/bbl, Rupee dollar exchange rate at ₹73, transportation changes of ₹7.25 for diesel and ₹3.82 for petrol, dealer commission of ₹2.53 for diesel and ₹3.67 for petrol, cess of ₹30 for petrol and ₹20 for diesel and GST rate of 14 per cent. Cess and GST are to be distributed equally between Centre and States.
The report has taken 10 per cent yearly growth in consumption of petrol during FY 2021-22, while for diesel, it has been pegged at 15 per cent.
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As on date, though, petrol and diesel are part of GST Act, but it is up to GST Council to decide the date and rate for imposition of GST. Till then, Centre and States will continue to impose levies.
Accordingly, Centre is levying Central Excise Duty along with cess at specific rates while States are levying VAT at ad valorem rate (percentage of base price) and cess at specific rates (at specific rates). It is estimated that around 60 per cent of retail prices of petrol and diesel account for levies imposed by Centre and States.
The research report said that at GST induced base price of ₹75 and ₹68 a litre Centre & States have a revenue deviation from budget estimates by only ₹1 lakh crore / 0.4 per cent of GDP after adjusting for the increase in consumption with the intended price cut.
“A dollar increase in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by around 150 paise and bring down the overall deviation by around ₹1,500 crore under our baseline scenario,” the report said.
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Further using the tax structure for F22, when Centre and states taxes are already so high, “we see that states which have the highest rates are losing revenue if they shift to this GST regime. But this flat taxation structure brings in uniformity and as per our calculations, it brings down the burden of taxes on the common man by almost ₹10-30 depending on the product consumed and the state in which it is consumed,” the report mentioned.
Additionally, it benefits some states which do not drastically tax their petroleum products, like Uttar Pradesh.
The report also highlighted that when crude oil /bbl declines by $10, Centre & States could save close to ₹18,000 crore, if they keep the petrol prices at baseline ₹75 & diesel at ₹68 and don’t pass on the benefit to consumers. This is higher than the savings at ₹9,000 crores, when crude prices go up by $10/bbl and if in the same vein increased prices are not passed on.
“We thus recommend Government builds up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer,” the report said.