The Ministry of Petroleum and Natural Gas (MoPNG), under the leadership of Oil Minister Hardeep Singh Puri, is initiating efforts to bring petrol, diesel, and aviation turbine fuel (ATF) under the Goods and Services Tax (GST) regime. This ambitious move seeks to integrate these vital fuels into the GST framework, a measure long advocated by various political entities as a means to alleviate fuel prices for consumers.
Minister Puri, in collaboration with the Minister of State, Suressh Gopi, emphasized their commitment to this initiative. “We will endeavor to achieve this,” stated Puri, underscoring the Ministry’s proactive stance. The procedural roadmap involves MoPNG forwarding a recommendation to the Finance Ministry, which would then present the proposal at the GST Council meeting.
The inclusion of crude oil, petrol (MS), diesel (HSD), ATF, and natural gas under GST is not without precedent. However, the critical step lies with the GST Council, which must designate the effective date for levying GST on these products. Currently, the Centre imposes excise duties while states levy VAT and sales taxes on auto fuels, resulting in varied tax burdens across regions.
The integration of these fuels into the GST framework promises significant economic benefits, primarily through price reduction, thus easing the financial burden on the general populace. Despite widespread political endorsement, consensus within the GST Council remains elusive due to concerns over potential revenue losses for both state and central governments. The petroleum sector’s substantial contribution to the exchequer—approximately ₹7.51-lakh crore in FY24, with the Centre and states receiving ₹4.32-lakh crore and ₹3.18-lakh crore respectively—highlights the stakes involved.
Another complex factor is the current tax rates on petrol and diesel, which exceed the GST cap of 50 percent, including cess. For instance, as of March 16, 2024, the tax on diesel stands at 50.76 percent, while petrol is taxed at 63.4 percent. Aligning these rates with the GST framework, without disrupting the revenue neutral rate (RNR) principle, poses a significant challenge.
In a related development, Minister Puri reaffirmed the government’s stance on maintaining its stake in oil marketing companies (OMCs), dispelling speculations following the aborted divestment of Bharat Petroleum Corporation (BPCL) in June 2022. Addressing queries about securing long-term crude oil supply agreements with Russia, Puri expressed confidence in the economic feasibility and long-term sustainability of such deals for both private and public sector entities.
This strategic endeavor marks a pivotal step in the government’s broader objective to streamline taxation and enhance economic efficiency within the petroleum sector, fostering a more predictable and stable pricing environment for essential fuels.