The Union Finance Minister Nirmala Sitharaman announced on Friday that petrol and diesel will remain exempt from Goods and Services Tax (GST), despite recent discussions about including them among the products to be taxed. While this would have resulted in lower prices for consumers, drivers will be stuck with their current high costs. Governments at all levels depend on excise taxes and value-added taxes (VAT). Currently, drivers pay over 55 per cent in taxes on a litre of gasoline. 50 per cent of the retail price of a litre of diesel is taken up with taxes.

The GST will not apply to petrol or diesel

PTI quoted the finance minister as saying that the GST Council had decided that it was not the right time to subject petroleum products to the GST regime. In response to a Public Interest Litigation (PIL) filed by the Kerala High Court, the GST Council decided to debate whether or not petrol and diesel should be subject to GST.

Petrol and diesel inclusion in GST is still a hotly debated topic, given that both the central and state governments receive substantial revenue from fuel taxes, and neither is willing to reduce their share.

Current petrol and diesel taxes

On September 18, 2021, the price of petrol in Delhi was Rs 101.19 per litre, with an excise duty of Rs 32.90 and State VAT of Rs 23.35 comprising the remainder (Value Added Tax). Drivers pay Rs 56.25, or 55.58 percent, per litre of petrol when the two taxes are combined.

Diesel costs Rs 88.62 a litre, with an excise duty of Rs 31.80 and a VAT of Rs 12.96. The two taxes add up to Rs 44.76, or exactly half of the retail price when totalled together.

Reasons for increased petrol and diesel prices

Excise duty on gasoline and diesel brought in Rs 3,34,894 crore to the government coffers in FY2021. As Autocar India Professional Murali Gopalan recently wrote 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, especially at a time when GST collections are not exactly stellar.

States are also in a precarious financial position, which highlights the importance of levying a value-added tax on motor fuels. During a difficult Covid-19 period, everyone is focused on maximising revenue, but the customer is suffering in silence.

There’s also the issue of the federal and state governments pushing hard for the adoption of electric vehicles and other forms of electric mobility. While a number of states, including Delhi, Tamil Nadu, Telangana, Rajasthan, Assam, and Kerala, Maharashtra 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 boost to the EV industry.

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