Explained | Why did GST Council refuse to bring petrol, diesel under its ambit?

Petrol and diesel are two of the most highly taxed goods in the country and bring in huge revenues to both the Centre and the State governments

The Goods and Services Tax (GST) Council last week decided to not bring petrol and diesel under the ambit of the GST. The proposal to bring domestic fuels under the GST was taken up by the Council after an order by the Kerala High Court but members of the Council refused to accept it.

The rising cost of petrol and diesel has increased pressure on the government to reduce taxes on fuel prices in order to rein in their prices. The price of petrol has risen above the 100 rupee mark in major cities across the country. The government has blamed rising international crude oil prices for the rise 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, the high taxes are also seen as a major reason behind the rise in fuel prices. It should be noted that more than half of the money paid by the end consumer to purchase fuels goes towards paying taxes. Even when international crude oil prices drop, the government does not let domestic fuel prices to drop. Instead, it increases taxes to capture the windfall gains that could accrue to oil companies. For instance, even though international crude oil prices dropped to around $20 per barrel in April last year due to the huge drop in demand during the global lockdown, the retail price of petrol and diesel continued to stay high. The government says it increased taxes on domestic fuels to compensate for the loss of other revenues. The opposition parties have demanded that the government slash taxes to make fuels more affordable.