From UPSC perspective, the following things are important :
Prelims level : Taxing of fuels
Mains level : Limitations of GST
The Goods and Services Tax (GST) Council has decided to keep petroleum products out of the GST regime.
Present taxation of Fuels
- Currently, taxes on petroleum products are levied by both the Centre and the states.
- While the Centre levies excise duty, states levy value added tax (VAT).
- For instance, VAT on petroleum products is as high as 40% in Maharashtra, contributing over ₹25,000 crore annually.
- By being able to levy VAT on these products, the state governments have control over their revenues.
Impact of inclusion of fuel under GST
- If petroleum products are included under the GST, there will be a uniform price of fuel across the country.
- However, petroleum products coming under GST not necessarily means that taxes or prices will come down.
- If the GST council decides to opt for a lower slab, taxes may come down.
- At present, India has four primary GST rates – 5 percent, 12 percent, 18 percent and 28 percent.
- Levying a standard rate of GST on petrol would mean that the prices increase dramatically in Andaman and Nicobar, but on the flip side, they would fall in Maharashtra if the cumulative rate is lower than the current rate.
Key takeaways from States VAT
- Among the states, Rajasthan levies the highest tax across the country keeping VAT on petrol at 36 percent, followed by Telangana at 35.2 percent.
- Other states with more than 30 per cent VAT on petrol include Karnataka, Kerala, Assam, Andhra Pradesh, Delhi and Madhya Pradesh.
- On diesel, the highest VAT rates are charged by states like Odisha, Telangana, Rajasthan and Chhattisgarh.
- So far, five states, West Bengal, Rajasthan, Meghalaya, Assam and Nagaland have cut taxes on fuel this year.
Back2Basics: Petroleum Pricing Mechanism