DNA Explainer: What will happen if petrol and diesel is brought under GST?

Despite the popular demand of petrol and diesel be brought under the GST regime, the ruling party has made it clear that it cannot be possible - not just now but even in the near future.

On Wednesday, BJP leader Sushil Kumar Modi said that it won't be possible to bring petrol and diesel under the GST regime for the next eight to 10 years because that would cause an annual revenue loss of Rs 2 lakh crore to all states. 

During a discussion on the Finance Bill 2021, Sushil Kumar Modi told in the Rajya Sabha that Centre and states together earn more than Rs 5 lakh crore in taxation on petroleum products.

Sushil Kumar Modi said, "Repeatedly, the issue of putting petrol and diesel in the GST regime is being raked up. I have been associated with the GST for a long time, I want to know from the House, that if petrol and diesel are put under the GST regime, who will compensate for the loss of revenue of over Rs 2 lakh crore to states."

The statement assumes significance in view of the rise in petrol price for the past over one year which even touched Rs 100 per litre in some states.

What happens if petrol and diesel is brought under GST 

If petrol and diesel are brought under Goods and Service Tax then there would be a loss of Rs 2 lakh crore revenue to states.

If petroleum products are brought under the GST, 28% tax would be collected on them as that is the highest slab in the tax regime.

Presently, 60% tax is being collected on petroleum products by the Central and state governments.

If petroleum products are brought under the GST, it would result in a shortfall of Rs 2 lakh crore to Rs 2.5 lakh crore to both Centre and states.

If the government collects a 28% tax on petroleum products, then only Rs 14 would be collected per litre against Rs 60 at present.

If petrol or diesel price is Rs 100 per litre then the tax component is Rs 60 which includes Rs 35 for Centre and Rs 25 for respective states.

Besides out of the Rs 35 tax per litre, 42% goes to states.

How taxes from petrol, diesel is used

A tax collected on petrol and diesel is used to provide electricity and tap water to all households. 

The tax collected is used for the welfare of the country and countrymen.