Why the Government and States do not want Petrol and Diesel under GST | Detail Analysis

We all expects that the Indian Government would bring Petrol and Diesel under the Goods and Services Tax (GST) which would give a big news for the consumers reeling under high fuel prices.

At the GST Council meeting on 17th September 2021 the issue was taken for discussion.

But it was decide that it was not yet ‘the right time’ to include fuel within GST.

It means consumers will have to bear with the high cost of petrol and diesel for longer.

Petrol cost Rs 101.19 a litre in Delhi on 21st September 2021 and diesel price set at Rs 88.62. In Mumbai both the fuels were costlier with petrol at Rs 107.26 and diesel at Rs 96.19 per litre.

And if you compare this to where fuel prices stood in March 2020 at the beginning of the Covid-19 pandemic in India.

Petrol then cost around Rs 70 a litre in Delhi and diesel was around Rs 63.

It means petrol prices have rise by over Rs 31 in 16 months and diesel prices have grown by nearly Rs 25.

Higher fuel prices hit inflation as has been seen in recent months.

The rising prices of crude oil in the global market haven’t helped either.

Brent crude cost $74.79 a barrel in the international market as on 21st September 2021.

In September last year the cost just around $40 a barrel.

India imports nearly 80% of its crude oil requirements.

When GST was introduce in July 2017 five commodities crude oil, natural gas, petrol, diesel and aviation turbine fuel were exclude from its.

Since the Centre and states depended heavily on these for their revenues.

The expectation was that if the central and state taxes are replace by GST where the highest tax slab is 28 per cent then there would be a substantial reduction in fuel prices.

Replacing central and states government taxes with 28% GST will lower petrol prices in Delhi to around Rs 56 and diesel prices to around Rs 55.

Taxes on fuel have been a major source of revenue for central and state governments which is a key reason why they do not want to bring it under GST.

Taxes comprise 55.5% of the retail price of petrol in Delhi and nearly 46% of diesel.

The central government taxes (excise) on petrol in Delhi was Rs 32.90 and on diesel it was Rs 31.80 on 16th September 2021.

The duties imposed by the state (value added tax or VAT) was Rs 23.35 for petrol and Rs 12.96 for diesel.

The Centre government earn Rs 3,71,726 crore from excise on fuel and states earn Rs 2,02,937 crore for 2020-21.

Kerala High Court had direct the GST Council to forward a representation to the Centre to bring petrol and diesel under the GST and take an appropriate decision within six weeks In June 2021.

Union finance minister Nirmala Sitharaman on 17th September 2021 GST Council meeting, said :

The topic of inclusion of fuel in GST was taken into the agenda purely because of the Kerala High Court’s instructions.

“The Council had discussed it, and (it) felt that it was not the time to bring the petroleum products into the GST,”

Members were of the view that petroleum products should not be includes in the GST, without specifying any particular state.

As per reports Kerala, Tamil Nadu and the BJP-rule state of Karnataka had vehemently opposed such an inclusion, since it would damage their revenues.

Kerala’s finance minister K.N. Balagopal said that bringing fuel under GST would not lower the price of fuel and wanted the Centre to lower excise duties first.

K.N. Balagopal Said :

“The Union government is already collecting Rs 28 for diesel and Rs 26 for petrol as cess.

It is a special cess outside the divisive pool.

It is not share with the states.

Another Rs 4 is charge for a litre of diesel as agricultural cess.

So, if the government wants to reduce the price, the cess has to go,”.

Bringing fuel under GST would result in losses worth Rs 8,000 crore to his state, annually. Since the additional levies are not share with the state governments the Centre should reduce those.

Palanivel Thiagarajan, finance minister of neighbouring Tamil Nadu Said :

Government was ready to reconsider its decision on the issue of bringing fuel prices under the GST regime provided the Centre gives up the cess surcharge on petrol and diesel.

There will be pressure on the government to lower fuel prices and at some stage it will again have to look at including fuel under GST.


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