The one paisa reduction in petrol price has come as a cruel joke to fuel consumers who are battling the daily upward revision of petroleum products since the end of Karnataka Assembly elections. Even if the mistake has been accepted by the Union government, it took real fire fighting to douse one of the most embarrassing moments for Petroleum Minister Dharmendra Pradhan. Social media lambasted the Union government over the “one paisa reduction” on petrol. But the question is will heads roll over at the Indian Oil Corporation for this howler?
Even with a gradual fall in global crude oil prices ever since the Narendra Modi government came to power four years ago, fuel prices in India were maintained at earlier levels by successive hikes in excise duty. Tax on fuel has stabilised government’s revenue at a time when Goods and Service Tax (GST) collections were lower than expected and uncertainty loomed large.
At present, the tax component on petrol is a little over 100 per cent and for diesel taxes come at around 66.48 per cent. These taxes include central excise duty and VAT. The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. States have value added tax or VAT that vary from states.
Ironically, while the retail prices have gone up, the price at which fuel is sold to petrol pump dealers has come down drastically since 2013. The price of petrol charged to dealers during FY2014 was Rs 47.18 per litre, way more than the current charge of Rs 37.19 for the same litre. The government’s effective tax rate on petrol in 2013 was at around 43 per cent and now it has climbed up to little over 100 per cent.
For example, Maharashtra levies 46.52 per cent VAT on petrol, Kerala has 34 per cent and Goa imposes 17 per cent tax on petrol. According to the Finance Ministry’s revenue collection estimates, the Union government expects to collect more than Rs 2.5 lakh crore by levying taxes on petroleum products by the end of this fiscal. This is a huge jump from the gross revenue collection of around Rs 88,600 crore in 2013-14, in the last fiscal the collection was nearly Rs 2 lakh crore.
Even after crude oil global prices had fallen below $ 30 per barrel, the Union government had gradually hiked the excise duty on petrol and diesel. In November 2015 and January 2016 the Union government raised excise duty on petrol and diesel five times to take away the gains arising out of falling international oil prices. Prior to this, the government had, in four installments, hiked excise duty on petrol and diesel between November 2014 and January 2015 to buffer gains from fall in global crude oil prices.
Who lost in this exercise? The fuel consumer did, as they expected a fall in price. The hope for having petrol and diesel under the ambit of GST was crashed when the GST Council did not take any decision on this. The tug of war between the States and the Union government is now on to keep petroleum products out of GST ambit so that States can regulate their revenue earning through tweaking of VAT.
The excise duty on petrol has been hiked by Rs 11.77 per litre and that on diesel by Rs 13.47 a litre ever since Prime Minister Narendra Modi-led NDA government came to power in May 2014. Soon after moving to daily pricing of fuel in June last year, the Union government had cut basic excise duty on petrol and diesel by Rs 2 per litre in last October.
