Tax Spikes on Petrol

Thursday, 21 January 2021



Tax Spikes on Petrol

Swapnil Bharali | May 09, 2020 10:13 hrs

The consumer in Guwahati is paying more than almost four times the price of petrol than its actual base price, thanks to tax policymakers for imposing hefty taxes on the essential commodity to spike up government revenue.

Sample this: At current international prices, the base price at which petrol can be sent to the retail outlets including freight charges comes to only Rs 18.22 per litre in Guwahati. This means, taking the current price of petrol at Guwahati which is Rs 77.46 per litre, a consumer in Guwahati is paying a whopping Rs 59.24 in taxes per litre which includes central government taxes, dealer commission, VAT and excise which is levied by the state. 

Apart from international crude oil rates, there are two important factors which determine the fuel cost - VAT and Excise duty. Despite falling crude oil prices the oil import bill of Indian oil companies have come down heavily and they are making windfall gains. However, the benefit of falling international prices are not being passed on to the consumer.

From 2014, petrol prices have been hiked ten times; only twice it has been slashed in sync with the international crude oil prices. The oil prices in India are determined by the petroleum companies after it was de-regularised and was market linked. The government however has the authority to impose taxes. 

The recent sharp hike in prices in India comes despite extremely low global crude oil prices, with Brent Crude hitting a 21-year low, slumping into the negative territory.  The cost of Indian basket of crude is now averaged at $ 56.43 per barrel. 

Every dollar per barrel drop in crude prices reduces India’s oil import bill by Rs 10,700 crores on an annualized basis. Retail prices of petrol and diesel in India track global prices, not crude, but are broadly linked to oil price trends.

“The quantum of hike in duties by the government of India (GoI) is unprecedented and is aimed at generating additional revenues at a time when economic activity has been severely impacted by lockdowns owing to Covid-19. Additionally, this is the second time in the last two months that the GoI has hiked excise duty following the increase of Rs 3/litre for both diesel and petrol on March 14," Investment Information Credit Rating Agency, which tracks global crude oil prices, said in a statement. 

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