Bring Petrol and Diesel Prices Under GST

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We have been always told that pricing of petrol depends upon the cost of  crude oil in international market. In last few years there has been consistent decrease in international crude oil price. However the common man was forced to pay heavy amounts and he was not allowed to enjoy the benefits of reduced price. Price hike in petrol and diesel are due to number of heavy taxes imposed by state governments and central government. Due to this there is also inequality in price of petrol and diesel in different states of the country and also in different cities of same state of the country. These price rise are indirectly associated with our day to day commodities. The milk, vegetables, eggs, oil, etct etc everything becomes expensive because of increased transportation charges. The large population of India belongs to farmer family. The farmers find difficult to do farming because increased transportation charges.

It was August 2014, when petrol prices breached Rs 70 mark the last time. Back then the crude oil prices was around USD 98 per barrel. But, now the crude oil prices are hovering around USD 50 per barrel.

According to data released by the Indian Oil Corporation for the petrol price build up in Delhi, the fuel costs only Rs 26.65 at the refineries. Dealers get a litre of petrol at Rs 30.70. But, petrol is sold at Rs 70.39 a litre in Delhi. This means Rs 39.41 is charged as tax component and dealer's commission on every litre of petrol sold in the national capital.

While most of the taxable articles moved under the GST regime, petroleum products are still governed by VAT system. Different states have different rates of VAT applicable on petroleum products.

As per the data available with the Petroleum Planning and Analysis Cell (PPAC), Delhi charges a VAT of 27 per cent on petrol while it is 47.64 per cent in Mumbai, Thane and Navi Mumbai. This explains the difference of about Rs 9 in the petrol prices in the two cities.


Centre imposes excise duty on petrol and diesel. As per the PPAC data, excise duty on petrol has increased by 54 per cent since November 2014. An average increase of 46 per cent has been seen with regard to VAT on petrol while dealer's commission has been increased by as much as by 73 per cent.

Similarly, in the case of diesel, the excise duty has gone up by 154 per cent, VAT by 48 per cent and dealer's commission by 73 per cent. The excise duty on petrol and diesel has been increased on 12 occasions since 2014.

The combined effect of taxation on petroleum product by the Centre and the state governments is that the prices of petrol and diesel have gone back to 2014-level while the crude oil have become cheaper by little less than half.

It is not a surprise that during the same period revenue from petroleum products has increased from Rs 3.32 lakh crore in 2014-15 to Rs 5.24 lakh crore in 2016-17.


Under GST, the petrol and diesel prices under the present circumstances will become substantially cheaper. The GST regime provides for taxation rates of 0, 5, 12, 18 and 28 per cent. Petrol and diesel can't be expected to be taxed below 12 per cent.

At 12 per cent GST, the petrol will be sold at Rs 38.1 in Delhi - almost Rs 32 cheaper than the current rate for one litre of the fuel. At 18 per cent, petrol will be 40.05 a litre in Delhi while at 28 per cent, it will cost Rs 43.44 per litre.

If the SUV compensation cess is imposed over and above 28 per cent GST on petrol, it will cost Rs 50.91 in Delhi - still about Rs 20 cheaper than the existing rate.

As for diesel, its current price in Delhi is Rs 58.72 per litre. At 12 per cent GST, diesel will sell at Rs 36.65 in the national capital. At 18 per cent GST, diesel will cost Rs 38.61.

At 28 per cent GST, diesel will cost Rs 48.88 in Delhi and if SUV cess is imposed, the customers will have to pay Rs 49.08 for a litre of the fuel - still Rs 9.64 cheaper than the existing rate.

I am no economist, but I do understand if there is ONE NATION ONE TAX policy, the price of petrol prices will come down to 30% to 40%. Part of the above descriptions is taken from an article