The Impact of GST on Petrol and Diesel Prices: Clearing the Myth

Understanding the current taxation on petrol and diesel, and how GST can potentially reduce their prices, is crucial for policy makers and consumers alike. Let us delve into the intricacies to clear the myth around how prices might change.

Current Taxation on Petrol and Diesel

Currently, in the Indian market, petrol and diesel are charged state VAT and central excise duty. The process begins with the Central Excise Duty, which is added to the cost. Following that, State VAT is levied on the excised amount, creating a cascading effect or tax on tax. This results in higher prices for consumers.

Introducing GST and Removing the Cascading Effect

With the introduction of GST (Goods and Services Tax), the objective is to simplify the tax structure. Under GST, only GST would be levied on petrol and diesel, eliminating the central excise duty and state VAT. This theoretical reduction in taxes could potentially result in lower final prices at the petrol pump.

The Debate Over Reduction in Prices

However, the reality is not as straightforward. There is a prevailing myth that GST alone will significantly reduce petrol and diesel prices, which does not hold true for several reasons.

Loftiness of the Myth: Oil Cess

Some argue that if GST is introduced, the difference would be managed through an "oil cess," a name that might vary but essentially means the government will recoup the revenue in other ways. This shows that the myth about a price reduction is not entirely honest or accurate.

Concerns Over Revenue Loss

Another significant argument is the potential loss of revenue. The current excise and VAT amounts to approximately 55% of the total cost of petrol and diesel. Under GST, this could be capped at a maximum of 28%, with possible additional levies and cesses. While this might sound like a promising reduction, it is important to remember that the government needs this revenue to function. Till a viable alternative is found, it is unreasonable to expect a massive reduction in these prices.

The Future of Fuel Prices

As of now, approximately one-third of the total revenue is generated from fuel alone. Reducing this substantially could significantly impact the government's ability to provide essential services. Therefore, any proposals to reduce fuel prices under GST need to be carefully evaluated to ensure that the government does not face revenue shortfalls.

Conclusion

While GST has the potential to simplify the taxation structure on petrol and diesel, the likelihood of significant price reductions is limited by practical concerns such as the need to maintain government revenue and the presence of other taxation mechanisms. The myth of a significant price drop under GST must be approached with caution.