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EPF CAP RAISED BY FM, DISCUSSING GST ON FUEL

Context:

  • Finance Minister of India said that the Centre is ready to consider bringing fuel under the Goods and Services Tax regime if the States bring up the issue at the GST Council.
  • The Minister also introduced 127 amendments to the Finance Bill, 2021, which was passed by the Lok Sabha which included an income tax break for the proposed development finance institution to fund infrastructure and a tweak in the proposed tax provisions for employees’ provident fund (EPF) contributions.

Relevance:

GS-III: Indian Economy (Economic Development of India, Macroeconomics- Taxation)

Dimensions of the Article:

  1. About the Changes in EPF Tax
  2. Bringing Fuel under GST
  3. Impact of bringing Fuel under GST
  4. Current Pricing of Petrol and Diesel

About the Changes in EPF Tax

  • The government has also introduced an amendment in the Budget proposal to tax income on employee contributions of more than Rs. 2.5 lakh a year into Provident Fund accounts.
  • The FM said that they intend to raise this limit to Rs. 5 lakhs in those cases, and only in those cases where there is no contribution by the employer in the EPF account.

Bringing Fuel under GST

  • Economists have said that bringing petrol and diesel under the goods and services tax is an unfinished agenda of the GST framework and getting the prices under the new indirect taxes framework can help.
  • Centre and states are loathing to bring crude oil products under the GST regime as sales tax/VAT (value added tax) on petroleum products is a major source of own tax revenue for them.
  • Thus, there is lack of political will to bring crude under the ambit of GST.
  • At present, states choose to levy a combination of ad valorem tax, cess, extra VAT/surcharge based on their needs and these taxes are imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre.

Impact of bringing Fuel under GST

  • A growth in the consumption – diesel going up 15 per cent and petrol by 10 per cent – has been used to assess the Rs 1 lakh crore fiscal impact of getting petroleum prices under GST.
  • States, which have the highest share of tax revenues at present, will be the biggest losers if the system shifts to GST.
  • However, such a move will help consumers pay up to Rs 30 less per liter of fuel. This is because he highest slab under the existing GST rates is 28%. Even if petrol and diesel were to be taxed at the highest rate, the post-tax price will be much lower than what it is currently.

Loss of autonomy

  • Once petrol and diesel are subsumed within the GST, both the Centre and states will have to give away the current autonomy they enjoy with these taxes which serve twin purposes of counter-cyclical interventions in the realm of both politics and economy.
  • For example, both the Centre and the states increased taxes on petrol and diesel to compensate for revenue loss during the lockdown.
  • The central taxes on petrol and diesel are a fixed amount per litre rather than a fraction of the base price, which is how GST is levied currently.
  • Also, the current regime allows individual state governments to change their taxes – poll bound Assam has reduced taxes on petrol-diesel – a leeway which will not exist once they are subsumed within GST, as taxes will have to be uniform across the country.

Current Pricing of Petrol and Diesel

  • As per the latest (as of March 2021) price-build of petrol and diesel: State taxes had a smaller contribution to the retail price than central taxes.
  • While the state Value Added Tax (VAT) was just over 10 and 20 rupees, on diesel and petrol respectively, the union excise duties for both petrol and diesel exceeded 30 Rs.
  • These headline numbers suggest that the centre is a bigger beneficiary of tax incomes from the sale of petrol and diesel.
  • This is because FFC’s earmarked share of states in centre’s revenues applies to what is called the divisible pool of taxes, which excludes cess and other forms of special taxes. Overtime, the weight of cess and other such non-sharable taxes has been increasing in the centre’s gross tax revenue. This, in practice, has meant that the share of states in gross total revenue of the centre has never reached 41% and in fact gone down overtime.

-Source: The Hindu, Hindustan Times

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December 2022
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