The Impact of GST on Petrol and Diesel Prices in India: A Comprehensive Analysis
The implementation of the Goods and Services Tax (GST) in India has been a key focus of public and economic discourse, particularly regarding its impact on essential commodities such as petrol and diesel. This article aims to provide a detailed analysis of how GST will affect these fuel prices across the country and the factors that govern such changes.
The GST Council's Role and Potential Variations
The decision to implement GST on petrol and diesel will hinge largely on the consensus reached by the GST Council, a body comprising representatives from both the central and state governments. The council has the authority to make crucial decisions regarding the rate of GST to be applied, which could range from the current 0% to the maximum 28%. Any shortfall in revenue generated by GST may be supplemented by a surcharge, as indicated in the statement provided.
Current Taxation and Potential Scenarios
The current taxation for petrol, including the Central Excise Duty and VAT, stands at 57%. If the GST were to be introduced, the maximum rate of 28% could either increase or decrease the price of petrol, depending on the decisions made by the GST Council.
If GST at the highest rate (28%) is applied, combined with the removal of VAT, the price of petrol would increase to Rs. 80.56 in Chennai. If no GST is levied (0%), and VAT is removed, the price would decrease to Rs. 68.79. Reducing both GST and Excise duty by 5% would result in a decrease to Rs. 66.43. Further reduction, such as GST to 0% and Excise duty to 18%, would bring the price down to Rs. 59.45.These variations highlight the complexity and variability in how petrol prices might change due to the introduction of GST.
State Variations and Central Control
It is important to note that the applicability and impact of GST on petrol and diesel prices are subject to state variations. Each state may have its own view on the issue, leading to discrepancies in policy implementation. A central control and direction consensus is crucial for ensuring uniformity across the country, although this has not been fully established yet.
Theoretical Impact of GST
Theoretically, if the GST were to be implemented at 12%, 18%, and 28%, the price of petrol in Delhi would be significantly different:
At 12% GST, petrol would cost Rs. 38.1 per litre, which is almost Rs. 32 cheaper than the current rate. At 18% GST, petrol would cost Rs. 40.05 per litre. At 28% GST, petrol would cost Rs. 43.44 per litre.These calculations suggest that a lower GST rate combined with lower excise duty could substantially reduce the prices of petrol and diesel.
Why Petrol and Diesel Are Not Included in GST
It is noteworthy that a decision to include petrol and diesel under the GST regime has not been made despite the potential to reduce prices significantly. This decision is influenced by the critical role these fuels play as a significant source of revenue for both central and state governments. Heavy taxes are currently levied on petrol and diesel, and any reduction in these taxes could adversely impact government revenue.
Currently, the central excise duty and state VAT total 57%. If GST were implemented, the highest allowable rate (28%) would still leave a higher tax burden than the current system. Additionally, an additional cess on petrol and diesel, as imposed on other fuel types, might not be effective or appealing due to the potential revenue loss.
In conclusion, the impact of GST on petrol and diesel prices is multifaceted and subject to the decisions made by the GST Council. While theoretical scenarios suggest that reduced GST rates could lead to lower prices, practical considerations and state variations complicate this outcome. The goal is to maintain revenue neutrality and ensure price stability across the country.