Katerina Swanson
The application of GST on diesel fuel has been a topic of discussion in India. Currently, diesel fuel is taxed through VAT, central excise duty, and central sales tax, which vary from state to state. While the central government has shown intent to bring diesel fuel under the GST framework, the final decision rests with the states, which are reluctant to do so due to potential revenue losses. As a result, diesel fuel remains outside the GST regime in India for now.
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What You'll Learn
GST on diesel fuel in India
The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services across India. Currently, petrol and diesel are not subject to GST and are instead taxed by the state and central governments. This has resulted in varying prices across the country.
The Indian government has considered including petrol and diesel under the GST regime to standardize fuel prices and reduce the tax burden on consumers. However, this proposal has faced opposition from several states, which rely heavily on the revenue generated from state-specific taxes on these fuels. These states fear that including petrol and diesel under GST would lead to significant revenue losses, affecting their financial stability.
Despite the potential benefits of a unified tax system, the reluctance of states remains a significant hurdle. The complexity of tax reforms in a diverse country like India is highlighted by this debate, with similar discussions occurring regarding sectors like air tickets and hotel rooms. The government's plan to include petrol and diesel under GST remains a topic of ongoing debate, with periodic reviews by the GST Council.
While there is no pure GST on petrol and diesel anywhere in the world, some petroleum products used directly as industrial raw materials attract GST. For instance, petroleum oils and oils extracted from bituminous minerals attract an 18% GST, and aviation turbine fuels attract a 5% GST if they fall under the HSN code 27101939. However, the government has not finalized any rate for petroleum crude, diesel, and natural gas.
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GST on diesel fuel in Australia
In Australia, diesel fuel is taxed under both the fuel excise tax and the goods and services tax (GST). The GST on diesel fuel in Australia is currently 10%. This is applied on top of the fuel excise tax, resulting in a "double dipping" effect. However, the introduction of the GST in 2001 was fully compensated for by lowering the excise rate, and businesses may be entitled to exemptions or rebates for fuel excise tax.
The fuel excise tax in Australia is levied by the federal government and applies to all fuels, including diesel. The excise tax rate on diesel fuel in Australia is $0.442 per litre for ultra-low sulphur/conventional diesel. This rate is subject to change and has been adjusted over time. For example, from April 1 to October 1, 2022, the fuel excise tax was lowered by 50% to 22.1 cents per litre for all fuels due to the federal budget.
The GST on diesel fuel in Australia is also levied by the federal government. While it applies to all fuels, there are exemptions and rebates available for businesses. For example, fuel excise included in the price of fuel purchased by businesses for creditable purposes is refunded through a system of fuel tax credits (FTCs). As a result, fuel taxes in Australia primarily impact household consumption of fuel rather than businesses.
The GST on diesel fuel in Australia has a direct and indirect impact on final consumers. Directly, the GST payable on diesel fuel affects the pump price that consumers pay. Indirectly, the GST affects the cost of goods and services that use diesel fuel as an input, as consumers pay GST on the full price of these goods or services. However, the GST has minimal impact on the Australian government budget, as all GST revenue, minus administration costs, is paid to the states.
In summary, the GST on diesel fuel in Australia is currently 10% and is applied in addition to the fuel excise tax. The GST and excise taxes are levied by the federal government and impact both businesses and consumers, although there are exemptions and rebates available for businesses. The GST on diesel fuel has both direct and indirect effects on the pump price that consumers pay, contributing to the overall cost of diesel fuel in Australia.
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Benefits of including diesel in GST
The inclusion of diesel in the GST framework in India has been a topic of ongoing debate. While the central government has shown intent to bring diesel under the GST fold, the final decision rests with the states, which have not yet agreed to include it. Here are some benefits of including diesel in GST:
Standardisation of Prices
Currently, diesel prices vary across different states in India due to state-specific VAT and central excise duties. Bringing diesel under GST would standardise prices nationwide, reducing disparities caused by state-specific taxes. This would benefit consumers, especially those in states with higher VAT rates, by potentially lowering fuel costs.
Simplification of Taxation
The inclusion of diesel under GST would simplify the tax structure, making it more transparent and easier to understand for consumers. It would also lower compliance costs for businesses, as they would no longer have to navigate different tax rates and structures across states.
Reduced Tax Burden
Under the current tax structure, taxes can eat up to 40-50% of the diesel price. By including diesel in GST, the maximum tax outflow charged would be reduced. Even if diesel were charged at the current maximum GST slab of 28%, consumers would still pay less than they are currently paying.
Uniform Taxation
Bringing diesel under GST would create a uniform tax structure across the country. This would streamline fuel taxation, making it consistent across states. It would also address the issue of price variations caused by different tax rates and structures in different states.
Economic Growth
Standardising diesel prices through GST could promote transparency and potentially boost economic growth. Lower fuel prices would benefit businesses, reducing their operational costs and making them more competitive. This, in turn, could stimulate economic activity and contribute to the country's economic development.
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Opposition to including diesel in GST
While the Indian government has expressed its intent to bring diesel under the Goods and Services Tax (GST) regime, several factors have led to opposition to this proposal. Firstly, states are concerned about potential revenue losses if diesel is included in GST. Currently, states independently impose value-added tax (VAT) and other taxes on diesel, generating significant income for their governments. A transition to GST would result in a uniform tax structure, reducing the financial stability of states that heavily rely on diesel tax revenues.
Secondly, the complexity of tax reforms and the need to balance uniform taxation with the fiscal requirements of individual states cannot be overlooked. Adjusting to a new tax structure and compensating for lost revenue pose significant challenges for states. The central government would need to address these concerns and provide viable solutions to gain state support for the inclusion of diesel in GST.
Moreover, the impact on fuel pricing remains a contentious issue. While some argue that bringing diesel under GST would lower prices for consumers, others claim that a combination of GST and VAT would be required, potentially negating any price reduction. The current high taxes on diesel are justified by the government as a means to fund social programs, and any reduction in these taxes could affect funding for such initiatives.
Additionally, the political implications of including diesel in GST cannot be ignored. The decision-making process involves both the central government and the states, and reaching a consensus has proven challenging. While the central government favours including diesel in GST, the final decision rests with the states, many of which oppose this move due to the aforementioned reasons. As a result, the status quo is maintained, and diesel remains outside the GST framework.
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The future of diesel in GST
As of 2025, petrol and diesel remain outside India’s GST framework. These essential fuels are still subject to taxes such as VAT, central excise duty, and central sales tax, which vary from state to state. Including petrol and diesel under GST has been an ongoing topic of discussion. Petrol and diesel prices differ across states due to the various taxes imposed by state and central governments. Each state has the authority to set its VAT rates, which leads to price differences. Central excise duty is a uniform tax levied by the central government across the country, but state-specific VAT creates variation.
The government and the GST Council are yet to finalise any rate for petroleum crude, diesel, and natural gas. The council has not discussed diesel, petrol, and other petroleum products in the 53rd GST Council meeting that was held on 22nd June 2024. The government has not notified any date for levying GST on petroleum products. The GST Council is yet to take any decision on imposing GST on petrol and diesel, or other petroleum products.
In conclusion, while there have been discussions about including diesel and other fuels under the GST framework in India, there are several challenges and opposing viewpoints that need to be addressed. The future of diesel in GST remains undecided, and it is likely to take a long time for any changes to be implemented.
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Frequently asked questions
No, as of 2025, diesel fuel is not under the GST framework in India. It is still subject to taxes such as VAT, central excise duty, and central sales tax, which vary from state to state.
The decision to keep diesel fuel out of the GST framework is due to the potential loss of revenue for both the Centre and the States. The States, in particular, are wary of losing their already limited power to raise tax revenue independently.
The inclusion of diesel fuel in the GST framework remains a subject of active debate. While the central government has shown clear intent to bring diesel fuel into the GST fold, the final decision rests with the states, some of which are against the implementation of GST on fossil fuels.
