Examining the Inclusion of Petrol and Diesel Under India's GST Regime
This article explores the ongoing debate surrounding the inclusion of petrol and diesel under India's Goods and Services Tax (GST) framework. It outlines the current taxation structure, the potential benefits for consumers if fuel were brought under GST, and the government's plans and challenges in achieving this. While some petroleum products are already subject to GST, the final decision for petrol, diesel, and natural gas awaits unanimous state approval.
Since the Goods and Services Tax (GST) was introduced in India, the inclusion of petrol under its regime has remained a point of debate. Recent events, particularly since 2021, have fueled speculation within various industries that the GST Council might consider applying GST to petrol and other petroleum derivatives. During a press conference following the 53rd GST Council meeting, Finance Minister Smt. Nirmala Sitharaman affirmed the central government's desire to incorporate petrol and diesel into the GST framework, conditional on the agreement of all state governments.
Understanding GST on Petrol
Many inquiries arise regarding the applicability and rate of GST on petrol in India following the introduction of GST. Currently, GST is not imposed on petrol. Instead, its taxation differs across states and Union Territories, comprising a central excise duty on the base price and a state-level Value Added Tax (VAT) on the dealer's commission. According to Section 9 of the CGST Act, GST will be applied to petroleum crude, diesel, motor spirit (petrol), natural gas, and aviation turbine fuel from a date yet to be announced by the government. The GST Council, empowered by Article 279A of the Indian Constitution, holds the authority to determine this implementation date. Discussions between the central and state governments within the GST Council suggest that if petrol were included, it might face a maximum GST rate of 28% along with an additional cess. Consequently, state governments currently retain control over petrol pricing. The integration of petrol and diesel into the GST framework requires unanimous agreement from all states, a matter still under discussion. Should these products come under GST, the central government might then oversee their pricing. It is important to note that certain petroleum products, excluding crude, are already subject to GST when used as industrial raw materials, with specific HSN codes and rates:
| Particulars | HSN Code | GST Rate |
|---|---|---|
| Liquefied Petroleum Gases | 27111900 | 5% |
| Gaseous Petroleum Gases | 27112100 | 18% |
| Petroleum Oils (Non-Crude, >=70% Petroleum) | 27109100 | 18% |
| Raw Petroleum Coke for Aluminium Industry (IS 17049) | 27131110 | 18% |
| LPG for Non-Domestic, Exempted Customers (NDEC) | 27111200 | 5% |
| Petroleum Jelly | 27129010, 90 | 18% |
Advantages of Bringing Petrol Under GST
Including petrol and related commodities under GST would generally benefit consumers. Currently, taxes constitute approximately 40-50% of the retail price of petrol. Within the GST framework, the highest applicable tax rate is 40%, split equally between SGST and CGST (20% each). If crude petroleum, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel were taxed at the existing maximum GST slab of 28%, consumers would likely experience lower prices compared to the current system, resulting in a notable price decrease. The following comparison illustrates the potential price reduction:
| Particulars (Current Excise & VAT) | Amount (Rs.) per litre | Particulars (Potential under GST) | Amount (Rs.) per litre |
|---|---|---|---|
| A. Fuel Cost (Petrol, including freight) | 57.35 | A. Fuel Cost (Petrol, including freight) | 57.35 |
| B. Excise Duty (Rs. 19.90/litre) | 19.90 | B. Dealer Commission per litre | 3.87 |
| C. Dealer's Commission per litre | 3.87 | C. Total Value (A+B) | 61.22 |
| D. Total Value (A+B+C) | 81.12 | GST (Assumed 28% on C) | 17.14 |
| VAT (Delhi) @ 19.4% on D | 15.74 | ||
| Retail Price of Petrol (RSP) | 96.86 | Retail Price of Petrol (RSP) | 78.36 |
As demonstrated in the table, petrol prices under a GST regime would be lower than current prices. Even if the combined rate of pre-GST excise and average VAT were carried over, consumers would gain from the elimination of tax cascading effects. Even a 40% GST rate could still result in consumer benefits through price reductions. Nevertheless, it is highly probable that a distinct tax slab would be established specifically for petrol.
Government's Strategy for GST on Fuel
Varying VAT rates among states create price disparities, causing some states to incur revenue losses while others experience gains. Securing unanimous approval from state governments for including these commodities under GST could be a lengthy process, as it would standardize prices nationwide and eliminate advantages derived from interstate price differences. Union Petroleum and Natural Gas Minister, Shri Hardeep Singh Puri, stated that central government actions, like excise duty reductions on petrol, have shielded India from severe fuel price hikes. The integration of these products into the GST framework might occur once the government is assured that it can maintain its pre-GST revenue levels and offset any revenue shortfalls experienced since GST implementation.
Current Status of Fuel Under GST
Aviation Turbine Fuel, under HSN code 27101939, is subject to a 5% GST. Petroleum oils and oils derived from bituminous minerals are currently taxed at an 18% GST rate, as are all forms of petroleum gas. The government and the GST Council are still in the process of determining the final GST rates for petroleum crude, diesel, and natural gas.