Overview: Evaluating the inclusion of petrol and diesel under GST

Introduction
The goods and services tax (hereafter referred to as “GST”) was passed in 2017 with the goal of “one nation, one tax”. During the early stage, the Finance Ministry’s proposal recommended exempting crude oil, petrol, diesel, aviation turbine fuel (ATF), and gas from GST. However, they aimed to bring all of them under the GST regime once it had been fully implemented in the country. The state’s revenue is mostly dependent on petrol and diesel to meet its financial expectations and expenses, which is why petrol and diesel were not included in the GST.

In order to meet its daily oil demands, India imports between 80% and 85% of its gasoline and diesel; as a result, retail prices are determined by global market pricing. The demand- supply equation is used to determine the prices of oil products. Every thing we use or consume is directly impacted by the price of gasoline and diesel, which are mostly used in supply chains. As a result, if the price of gasoline or diesel increases, the cost of other everyday necessities will also rise, which will affect the life of the average person.

Margin, VAT and Excise Duty

Consumers must pay three main taxes on gasoline and diesel under the existing tax
structure: the dealer’s fee or margin, value added tax (imposed by the individual States),
and excise duty (imposed by the Center). Due to the epidemic, the federal and state
governments have raised VAT and excise taxes to finance government programs,
vaccination campaigns, and other initiatives that support and manage the nation’s
economy. Speaking broadly, The combined cost of petrol and diesel per liter currently
includes approximately 45% to 53% in taxes. However, if these fuels are brought under the GST regime, the tax rate would be capped at a maximum of 28%. This significant difference clearly explains why the public is advocating for their inclusion under GST.

Why Some States Are Opposing ?

Due to apprehension of losing state revenue if gasoline and diesel are included in the GST.

Overall, this procedure has been hampered by the Central Government’s inability to
reimburse the States for their tax deficit. The Central Government and State Governments are afraid that gasoline and diesel would be included in the GST due to “revenue implications.”
Therefore, the Central and State Governments must work together to address and resolve this issue of revenue considerations. Otherwise, the rising costs of petroleum goods will disproportionately affect the average person. We must realize that this necessary adjustment can only be brought about by the GST Council after consulting, discussing, and obtaining permission from the State Governments.

Will the inclusion of petrol and diesel under the GST solve the problem?

The crucial question at hand is whether the GST’s inclusion of gasoline and diesel
would address the issue of their growing costs. Yes, it would significantly reduce the
cost of gasoline and diesel, which would ultimately help the final customer.
However, we also need to look at its overall influence and effect on the future of
the nation. We will eventually have to restrict the use of petroleum products in our
daily lives because they are made from fossil fuels that are running low. Lowering
the cost of gasoline and diesel will be beneficial in the short term, but in order to achieve sustainable growth and development, all consumers will eventually need to begin switching to renewable energy sources. Instead of concentrating on adding gasoline and diesel to the GST, what if our nation conducted rigorous, in-depth study to identify effective ways to encourage the switch to renewable energy right away?

The urgent need for more improvements and modifications to the GST tax regime
is evident throughout the nation, and the micro, small, and medium-sized business
(MSME) sectors are also calling for the resolution of the complicated issues
surrounding the GST. This argument was brought up in order to consider the
complexity of the GST and be prepared with solutions to deal with it should
gasoline and diesel be included. Politics plays a crucial role in this process because
the nation’s cooperative federalism is eroding, which makes it more difficult to
enact policies these days.

CONCLUSION

The two main concerns in India right now are petrol costs and GST. According to
some reports, India’s petroleum prices are higher than those of any other
Southeast Asian nation. The primary cause of this is the additional fees associated
with petroleum products, such as VAT, dealers’ commission, and excise duty.
Petroleum products would be subject to a “uniform tax mechanism” if the GST
council agreed to include them in the GST.The price of the petroleum product will
be cut in half from what the client currently pays if it is subject to GST. In India,
States collect indirect taxes on petroleum and other associated goods, which
account for half of their total revenue. Therefore, the GST Bill’s inclusion of
petroleum items has raised states’ concerns about income loss. This is among the
factors that prevent petroleum products from being subject to GST.