Regan Brown
The Goods and Services Tax (GST) is a value-added tax levied on goods and services, and it is applied differently on fuel around the world. In India, there is currently no GST levied on petrol, but the government has stated that GST will be applicable on petrol and diesel in the future. In Australia, fuel is subject to a 10% GST, while in Canada, the GST rate varies across provinces, with some like Quebec levying a sales tax on fuel and others like Ontario distributing a portion of tax revenues directly to municipalities.
GST on Fuel
| Characteristics | Values |
|---|---|
| Countries with GST on fuel | Australia, Canada |
| GST rate on fuel in Australia | 10% |
| Additional fuel taxes in Australia | Excise tax |
| GST rate on fuel in Canada | Not specified; varies by province |
| Additional fuel taxes in Canada | Excise tax, provincial sales tax (PST) |
| GST on fuel in India | Not currently levied; maximum rate of 28% could be applied in the future |
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What You'll Learn
GST on petrol in India
In India, petrol is currently excluded from the Goods and Services Tax (GST) regime. Instead, the central government levies excise duty, while state governments charge a value-added tax (VAT) or sales tax, with rates varying across states. This has led to different petrol prices in different parts of the country.
Bringing petrol under the GST regime has been a topic of discussion, with the GST Council considering it in 2021. According to a report by SBI economists, including petrol under GST could reduce prices to around ₹75 per litre, providing relief to consumers. However, there are challenges to implementing GST on petrol. Currently, taxes on petrol amount to over 100%, and the GST rates would need to be very high to match the current tax revenues. The central and state governments rely heavily on taxes from petroleum products, and a shift to GST could result in a significant loss of revenue for both. Additionally, the varying VAT rates across states would make it difficult to implement a uniform GST rate on petrol without causing price increases in some areas and revenue losses in others.
The Indian government has considered the potential benefits of including petrol under GST. A uniform GST rate would simplify the taxation system and make fuel prices consistent across the country. It would also end the cascading effect of tax on tax, where state VAT is levied on both the cost of production and the excise duty. Additionally, including oil products in GST would help companies set off taxes paid on inputs.
While there are calls for reducing excise duties on petrol to provide relief from high fuel prices, the government has other considerations. Keeping petrol prices slightly high can help control fuel consumption. Additionally, when crude oil prices fall internationally, the Indian government may choose to purchase more crude oil reserves instead of reducing tax rates. This strategy ensures a stable supply of oil from countries with volatile relations and benefits the government financially when crude oil prices are low.
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GST on biodiesel in Australia
In Australia, the main fuel tax is an excise tax, to which goods and services tax (GST) is added. The GST, currently at 10%, is applied on top of the fuel excise tax. Biofuels, including biodiesel, are subject to excise duty when they are delivered from licensed premises into the Australian market.
Biodiesel is a type of biofuel derived from animal or vegetable fats or oils, whether virgin or recycled, to form mono-alkyl esters of fatty acids, which can be used as fuel. Licensed excise manufacturers often blend biodiesel with diesel to create blended petroleum products. B20, for example, is a blend of 20% biodiesel and 80% diesel. If excise duty has been paid on both components of the blend, an excise licence is not required to undertake the blending process.
The excise duty rates for fuel and petroleum products (excluding aviation fuels and certain petroleum-based products) are indexed twice a year, based on the consumer price index (CPI). The Australian Bureau of Statistics (ABS) is responsible for determining and publishing the CPI. Usually, indexation occurs on 1 February and 1 August. As of 1 February 2022, the excise tax on biodiesel was $0.041 per litre, which can be reduced or removed with grants.
The introduction of the GST in 2001 resulted in a phenomenon known as "double dipping", where GST was imposed on the excise tax. To compensate for this, the excise tax was lowered at the time. While the excise stopped being indexed for inflation in 2001, indexation was reintroduced in 2014. Additionally, the federal budget for 2022 reduced the fuel excise tax by 50% from April 1 to October 1, resulting in a rate of 22.1c per litre for all fuels.
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GST on gasoline in Canada
The Goods and Services Tax (GST) is a federal tax added to the cost of fuel in Canada. The GST is charged on the retail price, including other excise taxes, such as the carbon tax. The GST does not apply to provincial sales taxes levied at the pump as a percentage of the final price. The current GST is 5%, although some sources state it is 6%.
The federal government also charges an excise tax on gasoline, which has been in effect since 1995. This is a flat rate of 10 cents per litre on gasoline and 4 cents per litre on diesel. Furnace oil, natural gas, and propane are exempt from this tax. The excise tax rate for diesel fuel is 11 cents per litre.
In addition to federal taxes, gasoline in Canada is also taxed at the provincial level. Provincial governments collect gasoline taxes, which vary by province. For example, in Ontario, 2 cents per litre are distributed directly to municipalities. Three municipalities in Canada (Vancouver, Victoria, and Montreal) also apply taxes on gasoline based on a percentage of the retail price.
Some provinces have a harmonized sales tax (HST), which results in higher prices at the pump. For example, New Brunswick has a lower fuel tax rate than other provinces, but the 15% HST results in higher prices. Quebec also has a reduced fuel tax rate in certain regions bordering other provinces or US states, but it also has the additional Quebec Sales Tax (QST). Manitoba currently has the lowest pump costs in the country due to a "fuel tax holiday" that suspended the collection of the provincial fuel tax.
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GST on natural gas
Natural gas is currently outside the scope of the Goods and Services Tax (GST) regime in India. The Indian government has been discussing bringing natural gas under the GST regime, but it has not happened yet.
The Petroleum Secretary of India, Pankaj Jain, stated that the government is "cautiously optimistic" about the possibility and anticipates a resolution in the financial year of 2025. He highlighted that domestic taxes on natural gas are still a work in progress, impacting the use of natural gas.
The current exclusion of natural gas from the GST regime has led to adverse effects on natural gas prices. This is due to the accumulation of taxes at different stages of the supply chain, resulting in higher prices for customers. Additionally, the non-inclusion of natural gas in the GST regime affects the industry by stranding legacy taxes, such as central excise duty, state value-added tax, and central sales tax.
Bringing natural gas under the GST regime could result in several benefits. It would allow for a streamlined tax structure, reducing the overall tax burden and making natural gas more competitively priced. Additionally, entities such as gas companies, city gas distribution networks, and industrial gas users would be able to claim input tax credits, potentially lowering their costs and improving operational efficiency. A uniform tax rate across the country would also encourage free trade and the development of a gas exchange in India.
The final decision regarding the inclusion of natural gas in the GST regime rests with the GST Council. The government has set a target of increasing the share of natural gas in the country's primary energy basket to 15% by 2030, and the inclusion of natural gas under the GST regime is expected to accelerate this shift.
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GST on diesel
In India, the Goods and Services Tax (GST) has not been levied on diesel as of 2024 and 2025. The tax on diesel is currently determined by individual states and union territories, which impose a central excise duty on the base price and state Value-Added Tax (VAT) on the dealer's commission. While the central government has expressed its intention to bring diesel under the GST regime, the final decision rests with the states, and not all states are in agreement. Some states, such as Maharashtra, Madhya Pradesh, Rajasthan, and Kerala, oppose the move.
The inclusion of diesel under GST remains a subject of active debate in the GST Council meetings. Section 9 of the CGST Act mentions that GST on diesel will apply from a date to be notified by the government. However, no such date has been announced yet. If diesel is brought under the GST regime, it could lead to a maximum GST rate of 28%, including cess. Even if the GST rate is increased to 40%, consumers would still benefit from a price reduction compared to the current tax structure.
In Australia, diesel fuel is subject to an excise tax, which is levied by the federal government. On top of this excise tax, a Goods and Services Tax (GST) of 10% is applied. As of 2022, the excise tax on diesel fuel was $0.442 per litre, including biodiesel. It's important to note that businesses may be entitled to exemptions or rebates for fuel excise tax, and there are also incentive schemes to encourage the production and importation of clean fuels.
In summary, the application of GST on diesel varies depending on the region. In India, diesel is currently excluded from the GST framework, while in Australia, diesel is subject to both an excise tax and a 10% GST. The situation in each country is subject to ongoing discussions and potential changes in the future.
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Frequently asked questions
There is currently no GST levied on fuel in India. The tax on petrol varies with each state/UT. However, a maximum GST rate of 28% could be levied on petrol in the future.
In Australia, GST on fuel is set at 10%.
The GST rate on fuel in Australia is determined by the federal government. It was introduced in 2001 and is applied on top of the fuel excise tax.
In Canada, the federal government collects excise taxes and GST on gasoline, diesel, and aviation fuel. Most provinces and territories also have their own taxes on these fuels, and some metropolitan areas impose additional taxes.
The Canadian government collects approximately $5 billion per year in excise taxes and $1.6 billion per year in GST on gasoline and diesel. Additionally, the provincial governments collectively collect around $8 billion per year from excise taxes on these fuels.
