India can follow global models to bring fuel under GST: CBIC Chairman Vivek Johri

Johri said there will be a greater acceptability on rationalisation of GST rates as revenue efficiency improves.

India can bring fuel products, such as petrol and diesel, under the ambit of the Goods and Services (GST) regime by following the models of other countries, Vivek Johri, Chairman of Central Board of Indirect Taxes & Customs (CBIC), has said.

In an interview with Moneycontrol on July 5, Johri said the deadlock could be broken by splitting the tax burden into two parts that allow states to retain a share of the revenues.

"Nobody will agree if you were to tell them that you have to fit petrol and diesel within the 12-18 percent rate structure because the actual incidence is much higher," Johri said.

"It is not as if these models are not available… for all demerit goods, like alcohol, tobacco, cigarettes and fuel, this is done in many countries," he added.

States are widely considered to be opposed to the inclusion of fuel items such as petrol and diesel under GST as it would adversely affect their tax collections. As such, states set their own taxes on them and a few other products such as alcohol. Critics argue that the exclusion of these products from the nationwide indirect tax regime introduces inefficiencies.

In a wide-ranging interview, Johri also laid out his agenda for the seventh year of the GST, with the focus being on improving compliance, strengthening audits, and providing better taxpayer services.

Edited excerpts:

The GST has just entered its seventh year. What is your focus going to be on in the coming 12 months?

One thing that we would focus on is in improving compliance in 2-3 ways. One would be the drive against fake billing and fake invoicing. Even after the current drive gets over on July 15, we will continue to do our work as we've been doing in the past on identifying bogus units and weeding them out of the system.

The other is that last year, we started with audits and we want to strengthen that. As I have been saying, return filings have improved a lot. But we need to supplement that by looking at the quality of information that has been turned in. We can only do that either by way of scrutiny or audits. But scrutiny only looks at the internal consistency of returns. It doesn't look at returns vis-a-vis the financials and other data sets. That happens only in the course of audits.

Last year, we had done about 30,000 audits and detected around Rs 17,000 crore of tax evasion. Recovery is still going on. This year, we are identifying another 50,000 units for audit.

The third leg of compliance is providing better taxpayer services, for which we will do more grievance redressal and outreach programmes. We have got a lot of suggestions already and many of these suggestions are about improving the taxpayer experience, such as providing more information so that the taxpayer is able to comply with the law better. It could also be about information pertaining to the availability of credit refunds. So we are going to discuss these suggestions with the GSTN (Goods and Services Tax Network) and see how we can implement them.

Also read: GST collections at Rs 1.61 lakh crore in June, up 11.7% from last year

The increased focus on compliance over the last two years has been given as a reason for the rise in monthly GST collections from Rs 1.2 lakh crore in 2021-22 to Rs 1.7 lakh crore, so far in 2023-24. Do you have an estimate of how much of the rise in collections is because of your efforts on compliance and other administrative issues?

I would look at it this way: if your rate of growth of tax was aligned completely with the GDP growth, that is explained by economic factors. But if it is more than that, that incremental change is happening on account of better collection efficiency. Last year, our buoyancy for GST was a little more than 1. So there is that element because of improved administrative measures and maybe some changes in law, which we have done to tighten the system and prevent misuse.

Indirect tax collections are supporting overall tax revenues so far in 2023-24. Do you see the government's budget estimate for indirect tax mop-up being met, given that economists see nominal GDP growth undershooting 10.5 percent on account of falling inflation?

Unless something goes fundamentally wrong, I think we are on track to meet the targets. We should be able to meet them.

We have the GST Council meeting next week. One of the issues that has been pending before the Council for a while is the taxation on online gaming. What is the solution for that, considering that the concerned GoM itself hasn't been able to reach a consensus so far? Does 'online gaming' need to be defined under law?

Today, it is all covered in the name of actionable claims, in the form of lotteries, betting, gambling, etc. Online gaming is not mentioned. For that matter, horse racing is also not mentioned. So, yes, if we need some more clarity, we may have to define online gaming as well.

Some producer states, such as Chhattisgarh, continue to complain about loss of tax revenue, following the end of the compensation period last year. Is there a way in which they can somehow be made up without upending the balance that has been reached?

These are mainly states that are mineral-rich. They feel that their mineral wealth is being depleted but they are not getting the revenue commensurately. They don't have a large consumption base either, so they are net exporters… They have a concern. I don't see how we can come up with something which is specifically targeted at them – unless the Finance Commission looks at it and changes the devolution formula and gives them something additional.

The government could end up paying back the back-to-back loans before March 2026, going by the monthly compensation cess collections. Since there is no precedent for this, what happens if excess GST cess is collected?

There is a need for a discussion on that in the Council. Either the Council decides that the cess should also discontinue from that period onwards (once the loans are paid back). Or if you continue to collect it, the question will be how to share it.

The inclusion of other products under the GST, such as liquor and fuel, remains a bone of contention, given their importance to states' own tax collections. Is the Centre open to compensating states, so that they are willing to let these items come under the GST?

Personally, if you ask me, there is a way out. And that's the model which is adopted in many countries that have VAT or GST. You just have to split up your current tax burden into two parts: a GST portion which is kind of VAT-able, and, over and above that, a non-VAT-able tax like an excise duty or a sales tax which is a single-point taxation.

Nobody will agree if you were to tell them that you have to fit petrol and diesel within the 12-18 percent rate structure because the actual incidence is much higher. It could be like tobacco: you can have it under GST and yet have a sumptuary tax sitting on top of that which allows your revenue stream to remain intact. So there's a way out.

To the extent the tax is collected by the Centre, it will be shared on the basis of the devolution formula. And if it's a levy which the states decide to impose, like sales tax, it goes to the states. Of course, a constitutional provision for a sales tax is not there now. But you may have to think of something. It is not as if these models are not available. These solutions are being used in many countries. For all demerit goods – including alcohol, tobacco, cigarettes – and fuel, this is done in many countries.