FROM PUMP TO POCKETS : EVALUATING PETROL’S PROBABLE INCLUSION IN GST

As of July 2024, petrol and diesel are currently publically pushed by central government to include it in the scope of Goods and Services Tax (GST) in India , currently it is excluded which means that these fuels continue to attract separate state and central taxes, namely excise duty levied by the central government and Value Added Tax (VAT) imposed by state governments.

Overview of Taxation on Petrol

1. Central Excise Duty: This is a tax imposed by the central government on the production or manufacture of goods within the country. For petrol, excise duty is charged per litre, and the rates can vary based on government policies and economic conditions. It is a significant component of the retail price of petrol and diesel.

2. State Value Added Tax (VAT): Each state in India imposes VAT on the sale of petrol and diesel within its jurisdiction. VAT rates vary from state to state and are applied ad valorem, meaning they are calculated as a percentage of the sale price. The VAT rates can differ significantly, leading to varying fuel prices across different states.

3. Additional Taxes and Levies: Apart from excise duty and VAT, there may be other levies such as road cess, infrastructure cess, and special taxes imposed by states or local bodies. These additional charges further contribute to the final retail price of petrol.

GST and Petrol:

• Exclusion from GST: Petrol and diesel have been kept out of the GST regime since its implementation in July 2017. The decision to exclude these fuels was made to protect state revenues, as they are major sources of income for both central and state governments through excise duty and VAT, respectively.

• Discussion on Inclusion: There have been ongoing discussions and debates about bringing petrol and diesel under GST to streamline taxation and create uniformity in fuel prices across the country. However, consensus among states and central government is required to amend the GST Act and include these fuels.

Impact on Consumers and Economy:

• Price Variability: The exclusion of petrol from GST means that consumers face varying fuel prices across states due to differing VAT rates. This can impact transportation costs, inflation, and overall economic stability.

• Revenue Generation: Taxes on petrol and diesel contribute significantly to government revenues, which are crucial for funding infrastructure projects, social welfare schemes, and other developmental activities.

• Policy Implications: The taxation policy on petrol and diesel has broader implications for inflation management, economic growth, and environmental sustainability, given the impact of fuel prices on consumer spending and industrial production costs.

For better understanding let’s have numerical analysis:

In Maharashtra petrol is currently priced at 103.56, following is the price breakup which includes current policy and hypothetical inclusion of commodity in scope of GST

COST	Current taxation policy	Policy under maximum permissible GST rate @40%
Base Cost (including dealer’s commission) before levy of taxes	59.9	59.9
Central Excise Duty	19.90/litre (~33.22%)	CGST 20% = 11.98
VAT	26% + Rs.3.12/litre additional tax	SGST 20% =  11.98
Final Cost	103.26	83.86

Cause of drastic reduction in prices:

Due to implementation of GST that to with maximum permissible limit as per CGST act i.e 40%, cascading effect of taxation in case of VAT is eliminated, cess is removed, and maximum permissible taxation on petrol is restricted to 20% each for both central as well as state govt. Thus, by consent of states, cost to end consumer can be decreased by 18.79%.

Conclusion:

The technical details of GST on petrol in India highlight its exclusion from the GST regime and the complex taxation structure involving excise duty and VAT. The decision to keep petrol and diesel out of GST reflects the current tax revenue structure and policy considerations aimed at balancing fiscal responsibilities with economic growth and consumer welfare. As discussions continue on GST reforms, including fuel under GST remains a topic of interest and policy debate nationwide.