How will GST affect the prices of petrol and diesel ?

Increase in the prices of petrol and diesel ahead of the last few months, the government is discussing the feasibility of bringing the two fuels under the Goods and Services Tax (GST) regime.

What is Goods and Services Tax (GST) in India ?

It is an indirect tax which has replaced various indirect taxes such as sales tax, value added tax  (VAT), excise duty, entertainment tax,etc. GST was passed in the Parliament on March 2017 and came into effect on July 2017. 

If we define in simple words then GST is an indirect tax levied on the supply of goods and services. This tax has replaced many indirect taxes that previously existed in India.

With the intoduction of GST in July 2017, the rules were also defined regarding the tax eligibilty and rates of various supplies. Even though the major petoleum products including petrol, diesel, crude oil or natural gas have been kept out of GST umbrella  whereas others similar products such as LPG, fuel oil , kerosene are included. The excluded items will continue to be taxed as per previous taxation laws i.e. VAT and excise duty.

How will it affect if these two fuels come under GST?

If government categories petroleum products under 12 per cent GST slab rate then the prices of petrol and diesel will decline. It would come up to around 38 rupees per litre in the national capital, New Delhi whereas levying 18 per cent GST, the prices will be near to 40.50 per litre. And if the government decided to put petrol and diesel under the highest slab rate i.e 28 per cent the cost of the petroleum products will fall to rupees 43.50 per litre in the national capital.

Likewise, if the government categorize diesel products under 12 or 18 per cent slab then the diesel price would be rupees 31 and 33 respectively in New Delhi. And if the government pushes the diesel under 28 per cent tax slab then it will cost around 43.50 in the national capital.

My view, whether the step will benefit the nation or not?

In my opinion, yes it will benefit the nation. Once petrol and diesel are brought under the ambit of GST, its threshold will change because now taxes upon taxes are levied which increases rates and GST will ensure a single tax and it will also reduce the cascading effect.

However, the states were wary of losing huge revenue on account of taxes they collect from fuel prices and liquor. As we were giving subsidy on the imports of fuels but when the rates came down, the subsidy was removed.