Prime Minister Narendra Modi, in his Independence Day address from the Red Fort on August 15, announced a major wave of reforms in the Goods and Services Tax (GST) system, promising to reduce the tax burden for citizens by Diwali 2025. While this announcement has created excitement across sectors, one question is on everyone’s mind: will petrol and diesel, currently outside the GST net, finally come under this revamped framework?
Current Status of GST and Petroleum Products
India’s GST system, launched in 2017, currently operates with four main tax slabs: 5%, 12%, 18%, and 28%. Certain luxury and demerit goods, like cigarettes and high-end cars, carry additional levies. Petrol and diesel, however, are not part of the GST system. Instead, they are taxed through a combination of central excise duties and state-level Value Added Tax (VAT), which together account for approximately 35% to 50% of the retail price. This dual taxation system often leads to price disparities between states and adds to the complexity of fuel pricing.
The Push for Reform
PM Modi’s speech emphasized the government’s commitment to simplifying the GST structure and reducing compliance burdens. He mentioned the formation of a Task Force for Next-Generation GST reforms, tasked with evaluating current tax slabs, identifying redundant procedures, and streamlining processes to make the system more citizen-friendly. While he did not explicitly confirm whether petrol and diesel will be included under GST, the announcement reignites a debate that has been ongoing for several years.
Finance Minister Nirmala Sitharaman has previously indicated that bringing petroleum products under GST is constitutionally feasible but requires consensus among states, as the GST Council governs such decisions. States currently rely heavily on fuel taxes for revenue, and any inclusion under GST would need careful calibration of rates to ensure fiscal stability while providing relief to consumers.
Potential Benefits of GST on Petrol and Diesel
Analysts suggest that if petrol and diesel are incorporated into the GST framework, several benefits could follow. First, price transparency would improve across the country, reducing disparities caused by varying state VAT rates. Second, a single uniform tax could eliminate cascading taxation, potentially bringing down fuel costs. Third, it could simplify compliance and reduce the scope for tax evasion, creating a more efficient system for businesses and government alike.
However, challenges remain. States may resist any move that could affect their revenue streams, particularly as fuel taxes constitute a significant portion of state budgets. Moreover, the GST Council would need to agree on a uniform rate that balances consumer relief with revenue sustainability, a task that requires political negotiation and economic foresight.
Economic Implications and Consumer Relief
The introduction of Next-Generation GST reforms is expected to focus primarily on daily-use items and services to directly benefit citizens and stimulate economic activity. According to estimates, lowering GST rates on select goods could result in a revenue loss of around 500 billion rupees, roughly 0.15% of GDP. Such measures would, however, serve as a significant policy stimulus, potentially boosting consumption and supporting households during the festive season.
Including petrol and diesel under GST would have a larger impact, influencing transportation costs, logistics, and ultimately, prices of goods and services nationwide. It could be a transformative step toward economic efficiency, provided states and the central government reach a mutually agreeable framework.
The Road Ahead
While PM Modi’s speech has outlined an ambitious vision for tax simplification, the inclusion of petroleum products under GST remains uncertain and contingent on political consensus. What is clear, however, is that the government is serious about reducing the tax burden, improving transparency, and creating a more streamlined system. If achieved, these reforms could mark a new era of economic relief and efficiency for Indian citizens, with Diwali 2025 potentially becoming a landmark moment in India’s tax history.
