New GST rates now effective: Have fuel, liquor become cheaper?
What's the story
India's indirect tax system is undergoing a major overhaul from today, September 22. The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman earlier this month, decided to slash tax rates on goods and services. The decision will affect at least 375 items in an effort to boost the economy amid tariff uncertainties. So, with the latest GST reforms, are petrol, diesel, and alcohol prices coming down? Let's find out.
Tax restructuring
Two GST slabs remain
The new GST structure will have just two slabs, 5% and 18%, instead of the previous four. Almost all goods under the 12% slab have been moved to the lower 5% bracket. Meanwhile, a whopping 90% of items under the higher 28% tax slab are now in the lower bracket of taxation at the 18% bracket.
Economic impact
₹2 lakh crore injected into economy
Sitharaman has said these GST reforms will inject ₹2 lakh crore into the economy, leaving people with more cash in hand that would have otherwise gone as taxes. However, it is important to note that petrol and diesel are not covered under GST. Hence, the recent changes won't affect their prices directly.
Price dynamics
Petrol, diesel prices won't be affected
The retail price of petrol and diesel is determined by various factors, including central excise duty and state value-added tax (VAT). While excise duty remains constant across states, VAT varies from one state to another. This is why petrol prices differ from state to state. The government has considered bringing these fuels under GST, but states have resisted, as they would lose their power to tax such items.
Alcohol taxation
Will alcohol prices change?
Similar to petrol and diesel, alcohol prices will also remain unaffected by the new GST reforms. The power to tax alcoholic beverages lies with states, which levy VAT on these drinks. States earn a significant portion of their revenue from alcohol sales, which is why it isn't included under GST. If state governments choose to reduce VAT at any point, alcohol prices would be reduced accordingly.