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Petrol prices to decline from ₹ 70 to ₹ 38 due to GST – But Will the government honor that decline?

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A lot of questions and queries have been raised with the Finance Minister, Arun Jaitley, regarding the petrol prices. Dharmendra Pradhan who is the petroleum minister was of the opinion that the inclusion of the GST was the only way to rationalize the fuel prices.

He said that bringing the petroleum products under the purview of the goods and services tax would help bring down the prices which have skyrocketed and reached a three-year high. In Mumbai, the prices are ₹ 80 per litre while in Delhi it is ₹ 70 per litre. If the petrol prices are brought under the GST, these would be reduced to as much as ₹ 38.10 in Delhi at a 12% GST rate.

In August 2014, the petrol prices had crossed the ₹ 70 mark because the crude oil prices were close to USD 98 per barrel. But presently the crude oil prices have come down to as much as USD 50 per barrel.

Why is the Petrol so much costly?

As per the data released by the Indian Oil Corporation, the fuel costs approximately ₹ 26.65 per litre at the refineries. Dealers get the fuel at ₹ 30.70 per litre. But the petrol currently is sold at ₹ 70.39 in the national capital. This means that ₹ 39.41 has been charged as a tax component and dealers commission on every litre of petrol that is sold.

Though the majority of the products and services moved towards the GST, petrol has still been kept under the VAT system. Thus different states have different VAT rates applicable on the petroleum products. As per the data made available by Petroleum Planning and Analysis Cell (PPAC), VAT charged in Delhi is around 27% whereas it is 47.64% in Mumbai, Thane, and Navi Mumbai. This apparently explains the ₹ 9 difference in the two states.

What is the Centre Government’s share in the Petrol Prices?

Centre government imposes an excise duty on petrol and diesel fuels. As per the data shared by the PPAC as much as 54% rise has been seen in the excise duty for petrol since November 2014. An increase on an average of 46% has been seen with this regard to VAT (value added tax) on petrol and also the dealer’s commission has risen by 73%.

Similarly, the excise duty for diesel has gone up by 154%, VAT by 48% and the dealer’s commission by 73%.

The excise duty on both petrol and diesel has been increased by as many as 12 times in the last three years since 2014. Thus the combined effect of both state and the Central government has been the reason as to why the petrol and diesel prices have been rising even when the crude oil prices have halved in the last three years.

This adds to no surprise that the revenue from petroleum products has increased from ₹ 3.32 lakh crores back in FY 2014-15 to ₹ 5.24 lakh crore in 2016-17.

Now, what if petrol comes under GST?

If petrol and diesel come under the GST, then there would be substantially made cheaper. The GST reform has laid down five brackets of taxes such as 0 %, 5 %, 12 %, 18 % and 28 %. Petrol and diesel though cannot be expected to be taxed below the bracket of 12%. Hence at 12% GST, the petrol would be sold at ₹ 38.1 a litre in Delhi, which would be as much as ₹ 32 less than the current rate. At 18% tax rate as well, the petrol would be ₹ 40.05 a litre.

Even in the worst case scenario if the SUV compensation cess is also imposed over and above the 28% bracket, even then the petrol would cost nearly ₹ 50.91 in Delhi. This is still ₹ 20 cheaper than the existing rates that we have.

The current price of Diesel is ₹ 58.72 per litre, and at 12% GST being imposed the diesel would be sold at ₹ 36.51 in the national capital. At 18% it would cost around ₹ 38.61.

But the entire decision to bring petroleum under the GST would be a decision from the state and central government. And this is yet to be seen if the GST council would be happy to let go the hen that is paying golden eggs.

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A pure vegetarian, who believes in reincarnation & law of karma and follows the philosophy of “Live and let others Live” because all living beings have equal right on the resources of this planet. Being from a finance background, he loves to write about business aspects of the trends.

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