Introduction
The ongoing debate over bringing air turbine fuel (ATF) under the Goods and Services Tax (GST) has sparked concerns among states, with Punjab’s Finance Minister Harpal Singh Cheema strongly opposing the proposal. Highlighting the financial strain it could impose, Cheema argues that transitioning petroleum products, including ATF, from VAT to GST could severely impact state revenues. The focus keyphrase, “GST on turbine fuel,” frames the discussion as states push back against potential fiscal challenges.
GST on Turbine Fuel: A Fiscal Challenge for States
Impact on State Revenues
During the 55th GST Council meeting held in Jaisalmer, Rajasthan, Punjab raised significant concerns regarding the inclusion of ATF in GST. Minister Cheema highlighted a stark drop in VAT collections from ATF:
- 2022-23: ₹113 crore
- 2023-24: ₹105 crore
- Till November 2024: ₹75 crore
This declining trend underscores the potential revenue loss states might face if petroleum products are brought under GST, removing them from VAT’s purview.
Broader Implications on VAT Collections
Punjab’s VAT collections from diesel and petrol have been critical for its fiscal health. Here’s a breakdown of revenue:
- Diesel: ₹3,600 crore (FY 2022-23), ₹4,400 crore (FY 2023-24), ₹3,400 crore (till November 2024)
- Petrol: ₹1,800 crore (FY 2022-23), ₹2,300 crore (FY 2023-24), ₹2,000 crore (till November 2024)
Cheema warned that the inclusion of petroleum products under GST could pave the way for an unbearable fiscal crisis for states already grappling with revenue losses under the GST regime.
State Demands and Proposals
Compensation for Revenue Loss
Cheema has sought compensation for the ₹20,000 crore loss Punjab claims to have incurred due to the GST regime’s implementation. He proposed that the base year for determining state shares be revised to 2015-16 instead of the preceding year, aligning with evolving economic conditions.
Continuous Compensation Cess
To strengthen state fiscal capacity, Punjab advocated for making the compensation cess a permanent feature. This, Cheema suggested, could be linked to capital expenditure, enabling states to invest in infrastructure development without jeopardizing fiscal health.
Supporting Disaster Relief Measures
Punjab supported Andhra Pradesh’s demand for extending the disaster cess (1% on intra-state goods movement) for two more years. Cheema emphasized that such measures should become a continuous mechanism to support states during natural calamities like floods.
Legal and Policy Considerations
The debate brings attention to potential constitutional challenges and fiscal implications:
- Integrated GST (IGST) Settlement Issues: Negative settlements under the GST regime have added financial strain on states, necessitating corrective policy measures.
- Legal Precedents: State demands for continuous compensation cess and revenue-sharing adjustments highlight unresolved concerns over equitable federal fiscal policies.
Courts may soon be called upon to clarify these matters, particularly if states face unsustainable losses under GST’s structure.
A Balanced Way Forward
The inclusion of ATF and other petroleum products in GST warrants careful consideration:
- State-Federal Collaboration: Both levels of government must engage in dialogue to ensure revenue sustainability.
- Dynamic Revenue Sharing Models: Revising the base year for revenue sharing and linking compensation cess to capital projects could mitigate losses.
- Industry-Specific GST Rates: Applying a hybrid GST-VAT system for sensitive products like petroleum could balance state and federal interests.
Conclusion
The proposal to bring ATF under GST highlights deeper challenges within India’s tax structure. While states like Punjab argue that “GST on turbine fuel” could trigger a fiscal crisis, the debate underscores the need for innovative, equitable policies that address revenue concerns without compromising federal harmony.
By fostering collaboration and implementing balanced reforms, the GST regime can evolve to better serve both state and federal interests, ensuring fiscal stability for all stakeholders.