Tuesday, May 13, 2014

Exploring policy options to include petroleum, natural gas and electricity under the Goods and Services Tax regime in India

NIPFP Working Paper 136

Sacchidananda Mukherjee and R. Kavita Rao
May 2014


The study analyses the impact of keeping crude petroleum, natural gas, motor spirit (gasoline/ petrol), high speed diesel (diesel), aviation turbine fuel (ATF) and electricity out of the Value Added Tax (VAT) scheme. Specifically, the study finds that keeping these items out of the input tax credit mechanism (either partially or fully) would result in cascading. Through an input-output framework, this study proposes some alternatives to the proposed design of GST and assesses the implications for cascading and prices. It captures the degree of cascading across 48 sectors under different scenarios and explores alternative policy options to phase out under-recoveries of oil market companies on account of sales of diesel and petrol under the administered pricing mechanism.