Oil Minister Hardeep Singh Puri announced that the Ministry of Petroleum and Natural Gas (MoPNG) aims to bring petrol, diesel, and aviation turbine fuel (ATF) under the Goods and Services Tax (GST). “We will try. The Minister of State (Suresh Gopi) and I will both work on it,” Puri stated.
To implement GST on these fuels, the MoPNG must recommend it to the Finance Ministry, which will then present it at the GST Council meeting. Both Puri and Gopi took charge of the ministry on Tuesday.
Currently, crude oil, petrol, diesel, ATF, and natural gas are under GST. However, the GST Council must decide the date to start levying the tax, as per Subsection 5 of Section 12 of the 101st Constitutional Amendment Act.
Presently, the central government imposes excise duty on auto fuels, while states levy value-added tax (VAT) and sales tax. Introducing GST on petrol and diesel could lower their prices, a long-standing demand supported by various political parties. However, the GST Council has not reached a consensus, fearing a loss in tax revenue for both states and the center.
In FY24 (provisional), the petroleum sector contributed around ₹7.51-lakh crore to the government exchequer, with the center’s share at ₹4.32-lakh crore and the states’ at ₹3.18-lakh crore. The previous fiscal year saw a similar contribution.
One challenge is the GST’s maximum tax rate of 50%, including cess, while the current tax on petrol and diesel exceeds 60%. As of March 16, 2024, the tax rate on diesel was 50.76%, and on petrol, it was 63.4%. “This is against the principle of the revenue neutral rate (RNR),” a source noted.
Bringing petrol, diesel, and ATF under GST would mark a significant shift in India’s tax landscape, with potential benefits for consumers but substantial implications for government revenues.
The Oil Minister’s proposal to bring petrol, diesel, and aviation turbine fuel (ATF) under the Goods and Services Tax (GST) framework is a significant policy shift that could transform India’s fuel taxation landscape. However, the transition poses considerable challenges. The current tax revenue from the petroleum sector is substantial, with the centre and states collectively garnering around ₹7.51-lakh crore in FY24. Shifting to GST, which has a maximum tax rate of 50%, could result in significant revenue shortfalls for both state and central governments, given that current tax rates on these fuels are higher.
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