Kerala cannot afford to lose revenue from fuel tax: Finance Minister
Ahead of the crucial GST council meeting in Lucknow on Friday, Kerala finance minister K N Balagopal on Thursday reiterated the state government’s stand against the proposal to bring petroleum products under GST regime. The state, he said, would make all possible efforts to protest against the proposal by bringing together all other states that are against the Union government proposal. The GST council has been pushing forward the proposal to include petroleum products under GST tax regime for long, but the immediate reason that brings the subjects to the table of GST council is Kerala high court’s directive to discuss the feasibility of the proposal. The Union finance ministry had in an affidavit submitted before the high court said that the GST council would discuss the subject on September 17. The Centre filed the affidavit in a petition filed by Kalady Sree Sankaracharya University former vice-chancellor M C Dileepkumar. Balagopal said the government would try to evolve a consensus among states that are of the view that states have the right to fix tax on petroleum products. According to Balagopal, the arguments that bringing petroleum products to the GST fold would lead to steep fall in fuel price were not based on facts. “The price of petrol and diesel would come down significantly only when the Centre stops collecting fuel cess. If the Centre is not ready to forgo the cess which it doesn’t share with states, price of petroleum products would remain the same even if it is brought under GST regime. States like Kerala cannot afford to lose the proceeds from fuel tax. If the Centre’s move materialises, Kerala’s revenue from fuel tax would comedown to Rs 6,000 crore from the current Rs 12,000 crore,” he said. If petrol is brought under GST, the tax on per litre petrol would be 28% of petrol’s basic price Rs 39 per litre. In that scenario, the GST on petrol per litre would be only Rs 10.92. And, the state would be eligible for only Rs 5.46 as tax per litre of petrol. Currently, the state receives around Rs 20 as tax on the sale of per litre of petrol.
Iran’s petrochemical, fuel sales boom as sanctions hit crude exports
Iranian fuel and petrochemical exports have boomed in recent years despite stringent U.S. sanctions, leaving Iran well placed to expand sales swiftly in Asia and Europe if Washington lifts its curbs, trading sources and officials said. The United States imposed sanctions on Iran’s oil and gas industry in 2018 to choke off the Islamic Republic’s main source of revenues in a dispute with Tehran over its nuclear work. The steps crippled crude exports but not sales of fuel and petrochemicals, which are more difficult to trace. Crude can be identified as Iranian by its grade and other features, while big oil tankers are more easily tracked via satellite. Iran exported petrochemicals and petroleum products worth almost $20 billion in 2020, twice the value of its crude exports, oil ministry and central bank figures show. The government said in April they were its main source of revenues. “The world is vast and the ways of evading sanctions are endless,” Hamid Hosseini, board member of Iran’s Oil, Gas and Petrochemical Products Exporters’ Union in Tehran, told Reuters. Competitive prices and Iran’s location, close to major shipping lanes, made its products attractive, he said. There are also many more buyers of refined products than importers with refineries configured to process Iranian crude. In addition, Iran exports some fuel by trucks to its neighbours, which involve small transactions that are tough for the U.S. Treasury to detect. Tehran has been in talks since April to revive its nuclear pact with six world powers, after the United States under President Donald Trump withdrew from the deal in 2018 and ratcheted up sanctions. Iran says it will only restrict its nuclear work under the pact if U.S. sanctions are scrapped. REVENUE SOURCE Meanwhile, Iran has positioned itself well to respond if the measures are eased. While most of the world slashed refinery throughput during the COVID-19 pandemic, Iranian gasoline exports rose 600% year on year in 2020 to 8 million tonnes, or 180,000 barrels per day (bpd), the customs administration said. As recently as 2018, Iran had been importing gasoline. Iran’s revenues from gasoline exports were an estimated $3 billion in 2020, Hosseini said. Iranian oil production is now about 2 million to 2.5 million bpd, with around 2 million bpd allocated to domestic refineries and roughly 500,000 bpd to exports, a source close to the oil ministry said, adding that Iran could boost crude output by 2 million bpd in two to three months if sanctions were lifted. Until sanctions were imposed, crude exports were Iran’s main revenue source, typically exceeding 2 million bpd and reaching 2.8 million bpd in 2018. Gasoline was delivered by truck to Afghanistan and Pakistan and shipped to the United Arab Emirates (UAE) across the Gulf, a source close to Iran’s Oil Ministry said, declining to be named. The UAE’s Ministry of Foreign Affairs and International Cooperation did not comment. Iran resumed fuel exports to Afghanistan in August at the request of the Taliban, a Sunni Muslim group that seized power when U.S. and other Western forces withdrew and with which Shi’ite Iran had tense relations in the past. Traders said Iraq and some African countries also bought Iranian gasoline, while several gasoline cargoes were shipped to Venezuela, which like Iran is a member of OPEC. The government of Iraq, which has for years imported gas and electricity from its neighbour under U.S. waivers, did not respond to requests for comment about the gasoline trade. ENCOURAGING BUYERS Petrochemical exports rose to 25 million tonnes in 2020 from about 20 million tonnes in 2019, an Iranian oil ministry bulletin said, while Iranian petrochemical capacity rose to 90 million tonnes a year in 2020 from 77 million tonnes in 2019. It is set to exceed 100 million tonnes in 2021. To encourage buyers, trading sources said Iran often offered prices that would cover shipping and insurance costs, alongside the extra fees for banking transactions. Those extras had raised the cost of Iranian products by about 25%, trading sources said. Even countries that seek to implement U.S. sanctions have sometimes struggled to halt all business with Iran. India banned imports of Iranian urea in domestic tenders under U.S. pressure but Hosseini said Iranian products were still offered via intermediaries. India’s Fertilizer Ministry, which drafts tenders for imports, did not respond to requests for comment. Officials in UAE and Iraq also did not immediately respond. Chinese firms remain the main buyer of Iranian liquefied petroleum gas (LPG), methanol, and many other products, trading sources said. China Customs and its Ministry of Foreign Affairs did not immediately respond to requests for comment. “If the international sanctions were completely dropped, Iran would go back to exporting methanol to its traditional locations instead of the vast majority going into China,” said Geoff Mullett, a methanol specialist at IHS Markit, referring to other markets such as Taiwan, Japan and South Korea and Europe. A senior analyst at IHS, April Tan, said Iranian exports were expected to rise if sanctions dropped, in particular fuel oil and liquefied petroleum gas (LPG) exports to Asia.
GST Council meet today: Covid relief, bringing oil and gas indirect tax regime on agenda
The GST Council will meet in Lucknow on Friday to take decisions on issues related to duty revision that were put on the back burner in earlier meetings to focus on the Covid relief measures amid rising cases during the second wave of the pandemic. The meeting, however, is expected to announce a few more Covid relief measures particularly on compliance matters. It will also announce a few measures to correct the inverted duty while discussing the compensation cess dues arising in 2021-22. Two other important items, including lowering of GST rates for two-wheelers and bringing natural gas into the indirect tax fold may also be included in the agenda for discussion. “Finance Minister Smt. @nsitharaman will chair the 45th GST Council meeting at 11 AM in Lucknow today. The meeting will be attended by MOS Shri @mppchaudhary besides Finance Ministers of States & UTs and Senior officers from Union Government & States,” the Ministry of Finance said in a tweet. The GST Council has already met twice this year when the panel of finance ministers discussed GST compensation and the borrowing formula offered by the Centre towards compensating states for GST shortfall while also announcing a series of duty relief and easing of compliance measures towards Covid relief. The 45th meeting of the council is expected to again discuss the compensation issue for the current year, but sources said it may also take a few steps to correct inverted duty structure without pursuing any increase in the GST rates or move towards converging GST to three rate structure. Sources also said that the council at the meeting may also take up two other important items, including lowering of GST rates for two-wheelers and bringing natural gas into the indirect tax fold. A top source in the finance ministry said that inverted duty correction, GST cut on two-wheelers and inclusion of natural gas into GST fold are on the agenda and hopefully the council will offer some solution that is in the best interest of all stakeholders. Correction of inverted duty structure, especially in sectors such as fertilizer, steel utelsils, solar modules, tractors, tyres, electrical transformers, pharma, textile, fabric, railway locomotives among other goods is required. Inverted duty refers to tax rates on inputs being higher than those levied on finished products. This results in higher input credit claims by goods besides several administrative and compliance issues. Currently, while duty on imported tyres is 10 per cent, its inputs i.e. rubber attracts 20 per cent duty. Similarly, solar modules do not attract any duty while its components attract 5-10 per cent duty. Similarly, the council may also consider lowering the GST rate of 28 per cent on two-wheelers to give a boost to its sales affected during the pandemic. The Council has in principle agreed to include five petroleum products under GST, but has so far deferred its actual inclusion into the indirect as states fear a big loss of revenue. But now, the government is considering bringing natural gas under the Goods and Services Tax (GST) regime to begin with as it would be difficult to bring the entire oil and gas sector immediately under it. Sources said that natural gas may be included under a three-tier GST structure where rates would vary depending on the usage. So, while piped natural gas (PNG) for homes may be kept at a lower rate of 5 per cent, commercial piped gas may attract the median 18 per cent GST rate and automobile fuel CNG may be kept in the highest bracket of 28 per cent.