Fuel prices in India can come down if they are brought under the ambit of Goods and Services Tax (GST), but there is a lack of political will, keeping the Indian oil product prices at one of the highest in the world, according to State Bank of India economists.
If included under GST, the petrol and diesel price, which is currently around ₹100 and ₹90 per litre, respectively, can come down to ₹75, and diesel to ₹68. The state's revenue loss will only be nearly ₹1 lakh crores or 0.4 per cent of the Gross Domestic Product (GDP), considering the global crude prices at $60 per barrel and exchange rate at ₹73 per dollar, reported Business World.
"Centre and states are loathed to bring crude oil products under the GST regime as sales tax/VAT (value-added tax) on petroleum products is a major source of revenue for them. Thus, there is a lack of political will to bring crude under the ambit of GST," the research report of SBI's Economic Research Department read.
The report is authored by SBI Chief Economic Adviser Soumya Kanti Ghosh. In the report, the economists have said that bringing both the products under GST is an unfinished agenda of the GST framework. Getting the price under the new indirect taxes could prove beneficial.
The prices of petrol and diesel have increased more than 20 times this year. Oil companies have said that the prices may increase in the future as the retail fuel prices may have to be balanced in line with global developments to prevent the oil marketing companies from making losses on auto fuel sales.
At present, the states' tax combination is of ad valorem tax, cess, extra VAT/surcharge based on the needs. The taxes are imposed taking crude price, transportation charge, dealer commission, and the Centre's flat excise duty into account.
The economists came with the base estimates based on the following assumption - for the crude prices and dollar rate, transportation charges at ₹7.25 for diesel and ₹3.82 for petrol, including dealer commission of ₹2.53 for diesel and ₹3.67 for petrol, cess of ₹20 for diesel and ₹30 for petrol, to be further divided equally between the Centre and states, and 28 per cent GST.
For the fiscal year 2022, diesel consumption growth rate up by 15 per cent and petrol by 10 per cent has been used to assess the ₹1 lakh crore fiscal impact of getting petroleum prices under GST, the report stated.
An increase of $1 in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by ₹1.50 and bring down the overall deviation by around ₹1,500 crores under the baseline scenario, the economists said.