Petrol and diesel bring in huge revenues to both the Centre and the State governments. Fuel taxes were projected to contribute almost ₹6 lakh crore to the Central and State exchequers combined in 2020-21.
The Goods and Services Tax (GST) Council last week decided to let petrol and diesel remain out of the ambit of the GST, at least for now. The discussion on including domestic fuels under the GST was taken up by the Council after a nudge from the Kerala High Court, but members of the Council chose to opt for the status quo.
The climbing cost of petrol and diesel has increased pressure on the government to reduce taxes on the fuels in order to rein in their pump prices. The price of petrol has risen above the ₹ 100 mark in major cities across the country. The government has blamed rising international crude oil prices for the increase in domestic fuel prices.
India imports more than 80% of its oil supplies and the price of crude oil in the international market does have a significant impact on domestic fuel prices. However, high taxes are also seen as a major reason for the rise in fuel prices. It should be noted that more than half of the money paid by the consumer to purchase fuels goes towards some tax or the other.
Even when international crude oil prices decline, the government has tended not to let domestic fuel prices drop. Instead, it has in the past raised taxes to capture the windfall gains that could accrue to oil companies. For instance, even though the prices of international crude oil futures dropped to less than $20 a barrel in April last year due to the huge drop in demand during the global COVID-19 lockdown, the domestic retail price of petrol and diesel continued to stay high.
The government says it increased taxes on fuels to compensate for the loss of other revenues. Opposition parties and even the RBI have urged the government to slash taxes to make fuels not only more affordable for the consumer but also to lessen the second-order inflationary impacts since diesel is the main fuel used by road freight operators, and its high price pushes up transport costs.
