Here’s what the government responded about GST levy on petrol and diesel
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On 19th July 2021, a few MPs raised questions before the Lok Sabha about why petrol and diesel are yet to be covered under GST and what measures the Centre is taking to reduce petroleum prices. The Finance Ministry stated that the GST Council is yet to discuss the matter based on representations from states and Union Territories.

Is the Finance Minister willing to explain why the Goods and Services Tax (GST) is not levied on petrol and diesel? Has the administration received any suggestions for placing petrol and diesel under GST? If so, what steps have been taken to date to address them? These were some of the questions raised by some MPs in the Lok Sabha on Monday, 19th July 2021.

With petrol and diesel prices reaching new highs every fortnight, this matter was raised by five MPs at the Lok Sabha session. The Centre replied that the GST Council has not deliberated on any proposal to bring petrol and diesel under the GST regime.

The inclusion of petrol and diesel under GST, according to Minister of State for Finance, Shri Pankaj Choudhary, will require the GST Council’s recommendation. The GST Council, which also includes representatives from all the states and Union Territories, is yet to recommend these items in the GST system.

He further stated that the Council might consider introducing petrol and diesel at such moment it deems appropriate, taking into account all relevant issues, including revenue implications. However, in the case of Liquified Petroleum Gas (LPG), it is already subject to the GST rate of 18%.

A similar question was last raised in March 2021 before Finance Minister Smt Nirmala Sitharaman. She responded that fuel taxes are imposed not just by the Central Government but also by the states. Furthermore, when the Centre collects taxes, a portion of the money is distributed to all the states. Moreover, she had then stated that it could be discussed if the matter comes up before the GST Council. 

The GST Council is mandated under Article 279 A (5) of the Constitution of India to recommend the date on which GST will be charged on petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas, and Aviation Turbine Fuel (ATF). Additionally, according to Section 9(2) of the CGST Act, the inclusion of certain products in GST will necessitate the Ministry of Finance recommendation.

In March 2021, Rajya Sabha MP Shri Sushil Kumar Modi reasoned that a GST levy on petrol and diesel is impossible for the next 8-10 years due to the impending annual loss of Rs.2 lakh crore to all the states due to such a move. He compared the highest possible GST levy of 28% to the presently levied cumulative tax rate of 60% on petroleum products. Accordingly, he noted that the States might never agree to bear this colossal difference as a loss.

In response to a question about efforts made to lower petroleum prices in India, the Finance Ministry stated that petroleum prices are connected to corresponding items on the international market. Oil marketing companies set retail selling prices depending on various criteria such as global product prices, exchange rates, tax structures, inland freight costs and other factors.

The Ministry added that petrol and diesel prices are determined by the demand and supply forces prevalent in the market with effect from 26th June 2010 and 19th October 2014. Since then, public sector Oil Marketing Companies (OMCs) have made appropriate pricing decisions for petrol and diesel based on international product prices and other market conditions.

With the ongoing financial stress that the states and Union Territories face due to the pandemic, it is interesting to note a development. The Central excise collections on petrol and diesel have jumped 88% on a Y-o-Y basis to Rs.3.35 lakh crore for the FY 2020-21. It results from hiking of excise duty from Rs.19.98 per litre to Rs.32.9 per litre for petrol and Rs.15.83 to Rs.31.8 per litre for diesel state for petroleum and natural gas, Shri Rameswar Teli.

Accordingly, the increase in taxes during the previous year did not result in any revision of retail prices of petrol and diesel as the reduction offset it due to a fall in global prices.

To conclude, since bringing petrol and diesel under GST is a sensitive matter, the GST Council should constitute a Group of Ministers at the earliest to settle it. Any decision taken on this behalf must be calculative rather than impulsive or politically motivated.

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