Kirit Parikh’s Suggestion Revives GST Debate On Petrol And Diesel

Energy expert and a former member of the Planning Commission, Kirit Parikh, has called for an urgent review of bringing petrol and diesel under the Goods and Services Tax (GST), as rising global crude oil prices start putting pressure on fuel costs in India.

With crude oil now around $120 per barrel due to tensions in the Middle East, concerns about rising expenses and inflation are coming back into focus.

The move brings back a long-standing debate around fuel taxation. Can GST make petrol and diesel more affordable and ease inflation?

Why Is The GST Debate Gaining Urgency Again?

Global crude oil prices are rising, and India depends heavily on imports, with nearly 85% of its fuel needs met from overseas. As a result, any increase in global prices directly impacts what consumers pay at the pump.

But the impact does not stop there. Rising fuel prices affect transportation and delivery costs, which eventually push up the prices of everyday items like groceries and essentials.

This is why Kirit Parikh has suggested revisiting GST on fuel. According to him, a more streamlined tax system could help manage drastic price rises better during global tensions.

How Would GST Change Fuel Pricing Compared To The Current System?

At present, fuel is taxed in two steps. The Centre first adds excise duty, and then states charge VAT on top of that amount. Since VAT is applied to a price that already includes excise, the final cost ends up higher than it otherwise would be.

Once fuel comes under GST, the structure becomes simpler. Rather than multiple layers, a single tax is applied to the base price. That makes the system easier to follow and removes the extra layer of tax.

A simplified comparison helps illustrate the difference: (Numbers used here are only for illustration).

Base price:

• ₹50

Current system:

• Excise duty: ₹20 → ₹70 (50+20)

• VAT (30%): ₹21 (30% on 70)

• Final price: ₹91

Under GST (28%, for instance):

• GST on ₹50: ₹14

• Final price: ₹64

In addition, GST would allow businesses to claim input tax credit on fuel, which is currently not permitted. This could reduce logistics costs and ease inflation over time.

That said, it all depends on the GST rate. If the rate is high, the overall benefit on prices may be quite limited.

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What Is Holding Back The Change?

The biggest challenge is that states earn a significant share of their revenue from fuel taxes. States together in 2025 have earned more than ₹3 lakh crore from these taxes. This revenue plays an important role in funding their overall spending, especially welfare.

Bringing petrol and diesel under GST would require this revenue to be shared, reducing states’ control over pricing. Hence, states have been careful about such a move. Any decision will require the GST Council’s approval and consent from all states.

To make the shift easier, Kirit Parikh has proposed that the Centre could compensate states for some time, but this would have implications for the Central Government’s finances.

A drop in fuel prices could benefit sectors like transport, logistics, and FMCG, while also supporting consumption. From an investor’s perspective, that makes this development important. However, with several hurdles in the way, any quick change looks unlikely. For now, crude prices and policy decisions remain in focus.

Sources:

NDTV

The Economic Times