India has one of the highest taxes on gasoline and diesel in the world. At present, 60 percent taxes are levied on mineral oil products.
Currently, gasoline, diesel and other related products are not subject to GST (Goods and Services Tax) but are subject to excise tax (by the Union government) and VAT (VAT charged by each state at different rates).
The excise duty on petroleum products accounts for up to 90 percent of all excise duties levied by the center. The center levies an excise duty of Rs 33 on one liter of gasoline.
Sales tax varies from state to state. Rajasthan has the highest local taxes on gasoline and diesel, followed by Madhya Pradesh, Maharashtra, Andhra Pradesh, and Telangana.
Before May 2014, the excise tax on gasoline was 9.48 rupees per liter – the current rate is almost three times that. Before 2014, the central tax on diesel was 3.56 rupees per liter. Today they are almost ten times as high.
The gasoline and diesel prices in the neighboring countries China, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and Myanmar are significantly lower than in India. They also import a significant amount of oil, but taxes in these countries are not that high.
In Canada, the tax on these products is 15 percent GST (5 percent for non-participating provinces) plus about 2. The United States has taxes of only about 15 percent. In the European Union, taxes are between 45 and 60 percent.
High oil prices increase inflationary pressures. Record high gasoline / diesel prices mean transportation costs are rising across the country, which in turn can lead to increases in the prices of essentials.
Household incomes are falling noticeably and have a negative effect on demand. Inflation risks are higher in 2022-23 as the global oil price forecast has now been revised to $ 75 a barrel, down from $ 60 for 2022, according to a report by Wall Street broker Bank of America Securities.
The center and the states collectively earn over 5 trillion rupees annually in taxes on petroleum products. If they were brought under the GST, it would result in a cumulative deficit of 2 to 2.5 trillion rupees for both the center and states.
The story goes on
Finance Minister Nirmala Sitharaman recently said in Lok Sabha that she was “happy” to discuss the proposal to bring gasoline and diesel within the scope of the GST. The taxes on gasoline are levied by both the center and the states, and both should work together on this. There were no hurdles from the center and the GST Council would have to take a call.
After extensive consultations with stakeholders, the National Democratic Alliance government introduced the 122nd Constitutional Amendment Act in 2014, according to which the only exclusion from the GST was alcohol for human consumption and a provision stating that the aforementioned petroleum products would be subject to the GST from that date as the Council recommends.
Such a delayed choice approach was chosen against the background of the reluctance of states to subject around 25-30 percent of their guaranteed tax revenues to the initial uncertainties of a new tax regime.
Accordingly, Sections 9 (2) and 5 (2) of the CGST / SGST Act and the IGST Act, respectively, expressly provide for the collection of GST on these products with effect from a date recommended by the Council.
This was a far-sighted move by the NDA government, which now allows GST to be levied on these products without any further constitutional amendment.
For economic recovery after the pandemic, economists believe it is important to lower taxes on oil and its products. It happened during the 2008-09 global financial crisis and gave factory output and the economy an instant boost.
The Governor of the Reserve Bank, Shaktikanta Das, has also called on the government to systematically abolish fuel taxes in order to reduce price pressure in the economy. A 28 percent GST charge on gasoline products would go a long way in alleviating these pressures.
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