Policy Options for including Petroleum, Natural Gas and Electricity in the Goods and Services Tax

This study analyses the impact of keeping crude petroleum, natural gas, motor spirit (gasoline/petrol), high-speed diesel (diesel), aviation turbine fuel and electricity out of the value-added tax scheme. Specifically, the paper 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 the Goods and Services Tax 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 marketing companies on account of sales of diesel and petrol under the administered pricing mechanism.