india

Updated: Mar 16, 2020 06:31 IST

Consumers pay about 54% taxes (or Rs37.83 per litre) on petrol while other price components, including freight charges and dealer commission, make up the remaining Rs 32.04 of the total retail price of Rs 69.87 (as of Saturday), according to latest official data in Delhi.

The total of taxes on diesel add up to about 46% at Rs 28.06 per litre, and the total of other cost components is Rs 34.52 a litre, showed the data on fuel price components released after the Centre raised excise duties on the two fuels by Rs 3 on Saturday.

Fuel station prices of petrol and diesel that change daily were Rs 69.75 per litre and Rs 62.44 a litre on Sunday. Before the latest price revision, the total tax on petrol was Rs 35.23 a litre and levies on diesel were Rs 25.31 a litre.

The Union government could raise the central excise duty without an effective increase in fuel station rates of the two fuels because of a steep fall in international oil prices since last Monday by about 31%.

Notwithstanding the central exchequer’s gain of about Rs2,000 crore of additional excise revenue through the duty hike in 2019-20, the downward trend in oil prices is a losing proposition for the Delhi government. It has lost 40 paise per litre on petrol because it levies value-added tax (VAT) on ad-valorem basis. VAT on petrol in Delhi is 27%.

The Delhi government is, however, losing 25 paise per litre on diesel because VAT on the fuel is ad valorem at 16.75%. In the case of an ad valorem tax, the amount paid is proportionate to the value of the asset taxed.

Fuel station prices of petrol and diesel are different in different states because of variations in sales tax or VAT rates and other local levies. States such as Tamil Nadu and Telangana have higher VAT rates. Telangana charges 35.20% VAT on petrol and 27% on diesel. The VAT rates in Tamil Nadu are 34% and 25% on petrol and diesel, respectively.

In order to protect against a sudden drop in their revenues due to a fall in international oil prices, some states have both ad valorem and specific rates. Specific rates are triggered only after international oil prices drop. For instance, West Bengal has sales tax on petrol at 25% or Rs 13.12 per litre, whichever is higher. Sales tax on diesel in the state is 17% or Rs 7.70 per litre, whichever is higher, according to the oil ministry’s data-keeper Petroleum Planning and Analysis Cell (PPAC).

Uttar Pradesh has a similar tax structure. Tax on petrol is 26.80% or Rs 16.74 per litre, whichever is higher, and tax on diesel is 17.48% or Rs9.41 per litre, whichever is higher. Uttarakhand, Assam, Haryana, Himachal Pradesh and Jharkhand have a similar taxation system as an ad valorem rate allows them to reap the benefit of any spike in international oil prices and the specific tax rate ensures that their revenues do not fall below a set level, even if global oil prices crash.

According to PPAC, Bihar has a different taxation system. Petrol attracts 22% VAT if the sale price exceeds Rs65 per litre, otherwise a 26% VAT is charged. Similarly, VAT rate on diesel is 15% if the sale price exceeds Rs64 per litre, otherwise 19% VAT is levied on the fuel.

Heavily taxed petrol and diesel are two main sources of revenues for the Centre and states. The Union government mopped up total revenue of Rs 3.48 lakh crore in 2018-19 from the petroleum sector. Out of that, the central excise duty collection was Rs 2.14 lakh crore. The states’ total revenue collection from the petroleum sector that year was Rs 2.27 crore. Out of that, the total sales tax or VAT revenue was over Rs2 lakh crore.

According to experts, crude oil prices should range below $35-40 for some more time due to geo-political reasons and the coronavirus pandemic. Last week on Monday, the benchmark Brent crude price plunged to $35.33 per barrel from the close of $45.27 per barrel from the Friday close, the previous week. Subsequently, Brent crude recovered marginally to close at $33.85 per barrel on Friday, March 13, 2020.

Demanding an excise duty reduction on petrol and diesel, DK Aggarwal, president, PHD Chamber of Commerce and Industry, said: “Prices of the petroleum products should be in sync with the deceleration in the international crude oil prices and all the movement in the international crude oil prices must be captured and implemented in the domestic prices in the same way.”

Attacking the Union government for raising excise duty on auto fuels, Congress leader Rahul Gandhi said in a tweet on Sunday: “Just 3 days ago I had requested @PMOIndia to pass on the benefit of the global oil price crash to Indian consumers, by slashing the prices of petrol & diesel in India. Instead of heeding this advice, our genius has gone and hiked #exciseduty on fuel!”

A top finance ministry official said on condition of anonymity that despite the excise duty hike, the prices of petrol and diesel did not rise, but were cut.