Inclusion of petroleum fuels under GST blanket in India is the topic of discussion, especially after the spree of back-to-back petroleum price hikes. After over a year, the government is likely to include petrol and diesel in GST regime – but will this end up lowering the prices of fossil fuels as expected? Well, “it depends”.

Ever since the introduction of Goods and Service Tax from July 1, 2017, the one unanswered question that has been swirling around is – why are petroleum-based fuels not included under GST regime? With fuel prices rocketing to the peak in recent times, the question has intensified even more – because most analysts believe that inclusion of fuel under GST would result into lowered fuel prices. Factually speaking, the price lowering factor depends on a number of factors like – the rate of GST, whether or not would the state governments levy their local taxes, and would the GST Council recommend cess or not. And above all, will the government be ready to let go a slippage of around Rs 20,000 crore of input tax that goes into its pocket by keeping fuel out of GST?

In a recent development, the government is looking up to include petrol and diesel under GST. If statements of anonymous government official are to be believed, Central Government of India is likely to be planning to include petroleum-based fuels – petrol and diesel – under the GST tax structure. The take is that fuels could supposedly be liable to highest GST rate slab of 28%. In good terms, the current tax implemented on fuels is already beyond the peak rate – which means, even if the government applies the highest GST slab rates, the prices of fuel are likely to become cheaper than what it is at present. But, it doesn’t end here.

The problem is, if GST rate is kept just at 28%, it would result in a big loss of revenue to both centre and states – and neither of them have the money to be able to compensate that loss. To resolve that, the only solution is to have a peak rate of tax plus allowing states to levy some amount of VAT. The government might keep in mind that the new tax regime do not exceed the current taxation incident – if not lower it. Hence, the cost of this new tax scheme would be equivalent to the current tax incidence that includes Excise Duty levied by Centre, plus the VAT levied by state governments. So GST – which was seen as the panacea for high fuel prices might not be any relief and will just keep fuel prices at same level; unless either of the governments decide to bear the losses and not go for an additional VAT or a cess – because anything is possible when elections are just a year away.