Following discussions of petrol and diesel, along with natural gas and aviation fuel to be brought under the purview of Goods and Services Tax (GST), the Union Finance Minister Nirmala Sitharaman on Friday said that petrol and diesel will continue to be kept outside the purview of GST. While this would have enabled a price reduction, motorists will have to continue to pay wallet-busting prices.
- Excise duty and VAT huge revenue sources for central/state governments
- Motorists are currently paying over 55 percent in tax on a litre of petrol
- Taxes account for 50 percent of the retail price for a litre of diesel
Petrol, diesel to remain out of ambit of GST
The finance minister said that the GST Council felt it isn't time to bring petroleum products under the GST regime, reported PTI. The GST Council took up this issue for debate on Friday due to the Kerala High Court’s directive to the GST Council, following a PIL, to include petrol and diesel fuels under GST.
The issue of bringing petrol and diesel under GST remains a contentious one, given that the fuels generate massive revenue in the form of taxes for both the central and state governments and neither is willing to reduce their share.
Current taxation on petrol and diesel
As of September 18, 2021, the price of petrol in Delhi was Rs 101.19 a litre, of which Rs 32.90 comprises excise duty and Rs 23.35 is State VAT (Value Added Tax). Club the two taxes and motorists are paying Rs 56.25 or 55.58 percent per litre of petrol as tax.
With regards to diesel which costs Rs 88.62 a litre, the excise duty component is Rs 31.80 while VAT is Rs 12.96 of the retail price. Together, the two taxes account for Rs 44.76 or exactly 50 percent of the retail price, in taxes.
Reasons for petrol, diesel price hikes
In FY2021, the Centre received Rs 3,34,894 crore excise duty from petrol and diesel. As Autocar Professional's Murali Gopalan wrote recently in his fuel pricing analysis, from the Centre’s point of view, it is only too well known that petrol and diesel account for a significant part of its revenue streams more so at a time when GST collections are little to write home about.
States are also financially fragile which also puts in perspective the imperatives of levying value-added tax on auto fuels. While everyone is busy mopping up revenue during a difficult Covid-19 period, it is the customer who is suffering silently.
There is also the case of the government – both Centre and states – aggressively driving the adoption of electric vehicles and electric mobility. While a number of states including Delhi, Maharashtra, Tamil Nadu, Telangana, Rajasthan, Assam and Kerala have introduced subsidy and incentive-laden EV policies, the government's recently announced PLI Scheme for India Auto Inc with an outlay of Rs 26,058 crore has given a huge fillip to the EV industry.