Over the last couple of months, the hot topic of discussions in all prime-time debates has been centred around “Bringing Petrol and Diesel within GST ambit“. The Petroleum Minister, Mr Dharmendra Pradhan, has on more than a single occasion brought up the matter to the notice of the GST Council and the Central Government. However, little has been done to curb the impact of rising petrol and diesel prices on rising inflation.
New Delhi, the National Capital, and Mumbai, the Financial Capital, are now recording an unprecedented increase in petrol and diesel prices. Mumbaikars will now need to pay INR 81.96 for one litre of petrol and INR 69.54 for one litre of diesel. In New Delhi, petrol and diesel prices are at an all-time high. Diesel price in the national capital has crossed the Rs 64 per litre mark. Other states are also witnessing similar upward trend. Amidst the rising petrol and diesel price, the call for bringing POL (Petroleum, Oil, and Lubricants) within the GST radar is gaining support and momentum from all quarters. However, the Government is tight-lipped on the matter. It has though in recent times urged the State Governments to reduce the VAT levied on POL products to reduce the burden on consumers. Reportedly, Four States and one Union Territory have reduced VAT on petrol and diesel.
Rising Crude Oil Prices and The Government’s Dilemma
India imports more than 80% of its crude oil demands. This makes petrol and diesel prices directly dependent on the international price of crude oil. Reportedly, the Central Government in November 2015 against the plummeting prices of crude oil in November 2015 raised excise duty to benefit from the decline in crude oil prices. The crude oil price in November 2015 was pegged at $30 a barrel. As per data from the Finance Department, the gross revenue collection from petroleum, oil, and lubricants (POL) stood at ₹88,600 crore in 2013-14. Under the present Government, projected proceeds from levies on petrol and diesel will account for ₹10 lakh crore for the Financial period 2014-15 and 2018-19. Hence projected average tax revenue from POL for a fiscal year stands at ₹2 lakh crore.
Read Also: What If Electricity Comes Under Goods and Services Tax India?
But the international crude oil prices have been on a steep upward trend and it has now reached almost $ 70 per barrel. This was aptly reflected in the form of rising petrol and diesel prices in the country over the past few months. Over the last three months, the price of petrol and diesel have increased by about Rs 5 a litre. State-owned oil firms Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation have done away with old norms. Unlike old times, petrol and diesel prices are revised on a daily basis. This has put a severe burden on the retail sector and the fluctuating retail prices could be the alarm bells for the things in store for the future.
Petrol and Diesel are a major contributor to the Central and State Governments tax kitty. As per the Finance Ministry officials, excise duty on POL products is a major source of tax revenue which keeps the fiscal deficit in check and also strengthens productive expenditure. The highest tax slab under GST is 28%. This means under GST, the maximum tax levied on Petrol and Diesel will be capped at 28 percent. GST will free Petrol and Diesel of excise duty imposed by the Centre and the Value Added Tax (VAT) levied by the States. This will bring down the price within the Rs 50-mark. In India, taxes contribute to almost half of the fuel pump rates, the highest among South Asian nations. Government Taxes (excise and VAT) account for about 48% of petrol value and 38% of diesel value. Excise duties on unbranded petrol and diesel have increased by more than 100% on petrol and more than 500% on diesel in the last three years.
From November 2014 to January 2016 the excise duty was increased on 9 occasions. It was only once in October 2017 that the excise duty was reduced. The decision was mainly driven by petrol price touching the INR 70.88 per litre mark and diesel price reaching INR 59.14 per litre. The government had decided to eliminate the ₹6 a litre additional excise duty on petrol and diesel and the basic excise duty was also reduced by ₹2 a litre. However, the provision for levying road and infrastructure cess of ₹8 per litre on petrol and high-speed diesel in the finance budget neutralized any dents that the excise rebate would have had on overall tax revenue. But the rising crude oil demands and repeated concerns from within the Government’s own circles mean that the GST Council will have to ponder more than it initially thought it would have to on the state of the tax structure that currently cripples the Petrol and Diesel dependent Indian economy. Bringing petrol and diesel within the GST ambit will require consent from all states backed primarily by huge state compensations.
Bhutan: Cheap Fuel Across The Border
Bhutan is involuntarily ensuring that bordering states of India find some happy respite amidst the growing petrol and diesel prices. People from the Nalbari district in the state of Assam it seems have found a not so legal solution to the problem.
Petrol and Diesel price rates in Guwahati, the Financial Hub of NorthEast India, is now at ₹75/liter and ₹64/liter respectively. However, if you are in Nalbari, a district in Assam, you can easily crossover to Bhutan (Don’t worry.. NO VISA REQUIRED) to fill your vehicle’s fuel tank and return unchecked. Reportedly, A litre of petrol costs around Rs 52 in Bhutan as opposed to Rs 76 in Assam, while diesel costs nearly Rs 20 less. With both the Indian Rupee (INR/Rs) and the Bhutanese Ngultrum (BTN) valued equally people in the state face little difficulty in exchange, payments as well as remittances.
Bhutan imports petrol and diesel from India. As part of GST, exports to Bhutan are now zero-rated. Excise duty levied on the exports is refunded to Bhutan. This has facilitated to about
17% reduction in petrol and 14% cut in diesel prices in Bhutan. The Bhutanese government in an effort to curb the evil practice has put restrictions on the purchase of the amount of fuel an individual can by from India’s Happy Borders. As of now, Indians can only buy Bhutan cheaper fuel worth up to Rs 500 per person.
Rapid Increase in Fuel Consumptions Across NCR
Supreme Court, in one of its ruling in 2015, had banned registration of luxury automobiles and sport utility vehicles with an engine capacity in excess of 2000cc in NCR. The ruling came at the backdrop of rising air pollution levels in NCR coupled with continuous backlash and uproar from various international and national environmental agencies.
On the contrary, diesel and petrol consumption has only increased over the past years. Petrol Consumption reached a 5 year high in July 2016, while diesel consumption surged primarily due to increased commercial transportation.
For the April-March FY2018, Sales of Fuel products has increased by 5%. Driven by the surge in economic activities in the region, consumption of Industrial and Commercial Fuel like fuel oil, aviation turbine fuel, etc recorded steady growth rate.
