Explained | Will fuel prices dip under GST regime?

Though the GST was introduced on July 1, 2017, petrol and diesel were kept out of it due to the higher dependence of states.

February 23, 2021 / 06:28 PM IST
An Agriculture Infrastructure and Development Cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel has been proposed in the budget. (Representative Image)

An Agriculture Infrastructure and Development Cess (AIDC) of Rs 2.5 per litre on petrol and Rs 4 per litre on diesel has been proposed in the budget. (Representative Image)

With fuel price skyrocketing, there is a widespread belief that the inclusion of petrol and diesel under the Goods and Services Tax (GST) may bring relief to the common man.

Already, Finance Minister Nirmala Sitharaman and Petroleum Minister Dharmendra Pradhan have batted for the inclusion of fuel under GST and indicated that the move may bring some relief to the common man. At present, the price of petrol and diesel includes excise duty charged by the Centre and value-added tax by the states. Though the GST was introduced on July 1, 2017, petrol and diesel were kept out of it due to this higher dependence of states.

Sitharaman called for a joint co-operation between the Centre and state governments to bring down fuel prices. On February 23, the price of petrol in Delhi was seen at Rs 90.93 a litre and diesel at Rs 81.32 a litre. The Centre levies an excise duty of Rs 32.98 a litre and Rs 31.83 a litre on petrol and diesel respectively.

Impact of inclusion of fuel under GST

If petroleum products are included under the GST, there will be a uniform price of fuel across the country. However, petroleum products coming under GST not necessarily means that taxes or prices will come down. If the GST council decides to opt for a lower slab, taxes may come down. At present, India has four primary GST rates - 5 percent, 12 percent, 18 percent and 28 percent.

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Major revenue earner for governments

The GST council is likely to put petrol and diesel in a higher slab or even put a cess on it as it is the major revenue earner for the government. Based on government data, during the first six months of the current financial year, the petroleum sector contributed Rs 2,37,338 crore to the government exchequer – out of which Rs 1,53,281 crore was the Centre’s share and Rs 84,057 was the share of the states.

In 2019-20, the total contribution from the petroleum sector for the states and the Centre was Rs 5,55,370 crore. During the last fiscal, the sector contributed around 18 per cent of the revenue of the Centre and 7 percent of the revenue of the states. As per the Union Budget 2021-22, the Centre is expected to collect an estimated Rs 3.46 lakh crore this fiscal, from excise duties on petrol and diesel only.

Among the states, Rajasthan levies the highest tax across the country keeping VAT on petrol at 36 percent, followed by Telangana at 35.2 percent. Other states with more than 30 per cent VAT on petrol include Karnataka, Kerala, Assam, Andhra Pradesh, Delhi and Madhya Pradesh. On diesel, the highest VAT rates are charged by states like Odisha, Telangana, Rajasthan and Chattisgarh. So far, five states, West Bengal, Rajasthan, Meghalaya, Assam and Nagaland have cut taxes on fuel this year.
Shine Jacob

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