An Analysis of Goods and Services Tax (GST) from the Stance of Diesel and Petrol

We are in the era of Goods and Services Tax (GST). As we all know, it is an indirect tax imposed on the distribution of commodities and services. A 5% GST has been levied on certain goods and services. GST is also charged at 12%, 18% and 28%. Interestingly, electricity, petroleum derivatives, the transactions of real estate and alcoholic drinks do not attract GST. The states impose taxes on these products separately. Merchants collect GST from people and pay it to the government. Why GST has not been imposed on diesel and petrol? Can GST be imposed on diesel and petrol? How does the imposition of GST affect the Centre and the states? A fuel consumer like you is expecting these questions to be answered.

Current Diesel and Petrol Prices

The consumption of diesel and petrol has been high in India because of its increasing number of motorists and commercial activities. Diesel, which can be used for multiple purposes, has an impact on the economics of the country. Fuel prices cannot be governed domestically since India relies on the import of petroleum heavily. They are revised considering the changes in the price of crude oil and the performance of the Indian currency against the base currency. The weakening INR and the growing international petroleum prices have pushed petrol and diesel prices up. In Mumbai, petrol prices are above the Rs.90 mark and diesel is also expensive across the country. Fuel consumers are hoping that the Centre will control fuel rates.

Why GST has not been Imposed on Diesel and Petrol?

The Centre understands the importance of maintaining an adequate quantum of funds that can be used for various purposes. Both diesel and petrol are a prime source of income for the Centre and the states. The intention behind the exclusion of diesel and petrol under the regime of GST is to keep its revenues uninterrupted. GST is a common tax platform. It makes diesel and petrol prices uniform throughout the country. The fuel prices currently are the same across different states because each state government imposes a different rate of sales tax on the fuels. The existing sales taxes and the excise duty are required to be substituted by GST. In other words, the imposition of GST even at the highest slab makes the fuels cheaper and eventually brings down the revenues for the states and the Centre.

Can GST be Imposed on Diesel and Petrol Soon?

According to experts, the government has no plans to bring diesel and petrol under GST. Many states are extending their support to the Centre, which likes to keep them outside the current tax regime. People can still hope that the GST Council can levy GST on them by restructuring the tax framework, but it is a daunting task. All petroleum products cannot be taxed at the same rate either by the states or by the Centre. For instance, natural gas currently attracts a specific excise duty and also a value-added tax.

Taxes are differently charged on aviation fuel, which is another petroleum. The Centre charges a certain amount of excise duty on petrol and diesel. Similarly, the states impose a specific percentage of sales tax. Despite these complications, GST may still be charged on the widely consumed fuels such as petrol and diesel. The following are a few options to be considered by the Ministry for Finance:

• The Ministry for Finance may consider replacing the current excise duty by GST at the first phase and including sales tax in the second phase.
• Automatic transmission fluid (ATF) and natural gas may be brought under GST since there is not much deviation in the state-wise taxes on natural gas.
• The difference between the diesel prices from one state to another is massive. Petrol prices are no different. Therefore, they may be considered at the final stage.

How does the Imposition of GST Affect the Centre and the States?

Let’s take a look at the complexities involved in the inclusion of the fuels under the regime of GST. The opposition party leaders are expressing the need of making the tax system uniform across the country, but the ruling government has a different opinion. It has become a prime issue and recently the Congressmen called the Bharat Bandh to protest against rapidly rising petrol and diesel prices. The Centre rejected the proposal of effecting GST on the fuels considering its financial health. Here are a few points to be noted:

• No GST can be implemented without decreasing the current 83% (including sales tax and excise duty) tax rate on petrol and 56% (including sales tax and excise duty) tax rate on diesel.
• The states will get 42% of the central levies.
• While the Central Government will collect Rs.14.66 on a litre of petrol, the states will get Rs.23.89.
• Similarly, the Centre will collect Rs.12.25 on a litre of diesel. On the other hand, the states will accumulate Rs.15.55.
• The highest GST slab defined by the GST Council so far is 28%. As per the GST regulation, it can be stretched up to 40%.
• In case of petrol, the duties have to be reduced to 40% from 83% and in case of diesel, they have to be reduced from 56% to 40%. Therefore, not only the Centre but also the states tend to incur huge losses.
• They may not be able to sponsor various types of schemes and also face a financial deficit, which can cause severe problems for the country.