India is the third-largest oil market in the world. Our annual oil consumption amounts to 211.6 million tonnes, however, less than 35 million tonnes are produced domestically. To bridge this shortfall, India imports more than 80 per cent of its oil supplies. The price of crude oil in the international market, which determines the base fuel price, has a significant impact on domestic fuel prices. Along with that, steep domestic taxes are adding to the woes of the consumers. 
Post implementation of GST policy in 2017, all goods and services sold in the country were brought under the GST ambit and were assigned to one of the four tax slabs - 5%, 12%, 18% and 28%. However, five commodities namely crude oil, natural gas, petrol, diesel and aviation turbine fuel (ATF), were kept outside the purview of the GST. These petroleum products continued to get taxed as per the previous taxation policy (central government's excise duty and state government's VAT) and contributes significantly to the Central and State exchequers. 
In a meeting held in the month of September 2021, the Goods and Services Tax (GST) Council decided to let petrol and diesel remain out of the ambit of the GST, at least for now. And while the eternal wait for common man to witness petrol and diesel being brought under the GST ambit continues, let's try and understanding the impact of such a change, if and when it is implemented.

If fuel prices got taxed under GST
The price break up of petrol sold in Delhi on October 1, 2021, saw the base price at Rs 41.32 per litre. Freight charge of Rs 0.31 is added to arrive at the price of Rs 41.63, which is charged to oil dealers or fuel pumps. Even if the highest GST rate slab of 28 per cent is charged on this amount, the total domestic tax on per litre petrol price will amount to Rs 11.65. This tax revenue would be equally divided between Central and State governments at Rs 5.82 each, arriving at the retail selling price of petrol at Rs 53.28 per litre. 
Similarly, on the same date, diesel retailed at a base price of Rs 42.29 per litre in the national capital. Add Rs 0.29 as freight charges to arrive at a dealer price of Rs 42.58. Had the GST policy been brought into effect and even if the highest slab of 28 per cent tax was being charged, the tax amount would have been Rs 11.92, which would be shared equally by the Central and State governments. The retail selling price for diesel under GST would have been Rs 54.50 per litre. 
Based on data available in the public domain, the last time petrol was sold for Rs 53 per litre and diesel at around Rs 55 per litre was in December 2010 and April 2014 respectively. Just compare that to the current petrol and diesel prices of Rs 107.94 and Rs 96.67 respectively, the GST-taxed fuel prices are almost half of the price that we are currently being compelled to shell out.

Reluctance of Centre and States to bring fuel under GST
Petrol and diesel are two of the most heavily taxed goods in the country and a source of huge tax revenue generation for both the Central and State governments. Fuel taxes alone were projected to contribute almost Rs 6 lakh crore to the Central and State exchequers combined in financial year 2020-21. Therefore, bringing domestic fuels under the GST ambit would effectively mean lowering of taxation leading to reduction of revenue generation. 
The highest tax slab under the GST policy is 28 per cent, whereas petrol and diesel are presently taxed at around 60 per cent. This is why both the Centre and the States are reluctant to reduce taxes in the fear of losing out on tax revenues. The state governments, in particular, are even more reluctant, since their independent power to raise tax revenue have already been curtailed in many areas, and by allowing petrol and diesel to be brought under the ambit of the GST would make them further dependent on the Centre to receive their share of the taxes. Presently, the States can independently impose a value added tax on the sale of petrol and diesel. The Centre and the States have also attempted to rationalise their decision to impose heavy taxes on fuels by citing that the revenue collected from this helps them fund several social and developmental projects. 
A chart collated by the Petroleum Planning and Analysis Cell clearly showcases the difference in tax earnings of state governments upon implementation of GST on fuel. For instance, the state of Delhi sees current revenue earnings at Rs 2652.58 crores. If fuel is brought under the purview of GST, that revenue figure would drop down significantly to just Rs 36.73 crores. Similarly, Maharashtra's current tax revenue stands at Rs 25430.09 crores, but upon the implementation of GST on fuel, that number would be reduced to Rs 932.48 crores only. West Bengal would also witness a similar decline in tax revenue collection with fuel being charged with GST, with its revenue summing up to Rs 417.62 crores compared to Rs 7915.68 crores earned under the current taxation policy.

Fuel prices without GST
The prices for petrol and diesel in Delhi during September 2021 were recorded at Rs 101.19 and 
Rs 88.62 per litre, respectively. If you break up the price, you will get a base price of Rs 41.1 for per litre of petrol; add to that Rs 3.84 as dealer commission. Further, add the central government's excise duty worth Rs 32.9 to it, followed by a VAT by the state government (varying from state to state) of Rs 23.35 by the Delhi Government. In essence, taxes account for more than 55 per cent of the retail petrol price, and a similar story can be seen in case of diesel as well. 
Diesel was being retailed in Delhi at Rs 88.62 per litre during September 2021. The base price plus the dealer commission combined amounts to Rs 41.27. Therefore, the remaining amount of Rs 47.35 or more than 53 per cent of the retail price constitutes the dual tax amount charged by both Centre and State governments.

Government's options to reduce fuel prices
India imports the majority of its oil supplies from West Asia, specifically from Iraq, Saudi Arabia and the UAE. While the USA is gradually rallying to become our country's fourth highest crude oil supplier, the West Asian countries still hold the lion's share of 61 per cent in the oil supply distribution network. To reduce the fuel prices in our country, the government can look out for a cheaper buyer network for oil resources across the globe like Iran and Venezuela. 
India's oil demand is estimated to grow at a rapid rate of 10 million barrels per day in 2030 against the current requirement of 5.05 million barrels per day. Such demand can only be met by alternative supply partners like Russia or opting for an alternative source of energy, preferably something clean like LPG. Russia, the largest natural gas supplier and the second-largest oil exporter could become a potential ally in the future to bridge the gap of our oil requirements. An alliance already seems to be brewing between the two countries as Indian Oil Corporation Limited has signed a contract with oil transport company Rosneft in February 2020 to supply two million tonnes of crude oil per annum to India via the Russian port Novorossiysk. 
While bringing the fuel under the GST ambit still seems a distant reality, the burning question of the moment is whether or not the Centre and the States are willing to reduce taxes on fuels, offering much desired relief to the consumers. It should be noted that the share of the final price of petrol that goes towards taxes has increased from approximately 30 per cent in 2014 to about 60 per cent now. So, a scenario in which both the governments opt to reduce their share of the tax pie is the best that the consumers can presently hope for.