22 Feb

In India, tax is increasing, not the ‘fuel price’

Fuel prices are rising through the roof. The reason we are given by the authorities is the rising crude oil prices, which is just half the truth. Here is how the fuel price is determined.

Fuel prices vary from state to state within our own country. The question is – What is the actual cost of fuel? 
For every litre of petrol we buy – taxes such as excise  duty, customs duty,  VAT, import duty are charged. We end up in paying 43 percent in the taxes. Breakup of these charges is provided below:

Excise duty – Rs 14.45
Import duty – Rs 2.5
Value added tax – 15% – 33% (varies state to state)
These central and state government charges make up the 50 percent of what we pay. The dealer earns as little as 1-2% as profit.

The generated VAT is meant to be used for the development within the states. Value added taxes differ from 15% to 33% from state to state. So depending on the state the petrol prices differ accordingly.

Below is the fuel price list of major cities:

State/City Petrol(Rs/ltr) Diesel(Rs/ltr)
Goa/Panjim 57.03 51.04
Orissa/Bhubaneshwar 68.33 51.00
New Delhi 69.06 48.16
Kerala/Trivandrum 71.28 50.86
TamilNadu/Chennai 72.17 51.23
UttarPradesh/Lucknow 74.44 51.35
AndhraPradesh/Hyderabad 75.37 52.46
Karnataka/Bengaluru 76.04 52.64

Goa for example, recently reduced the VAT on petrol thereby making it cheaper by Rs 11.

Fuel price Comparison with other economies
In USA, at present the fuel price is 3.74$ per galon, after conversion it becomes Rs 53.80 per litre. They have fixed per gallon taxes as well as taxes which are a fixed percentage of the sales tax. In fact, in US taxes and charges only account for 12-15 percent. Not even USA, but Pakistan fuel prices are 16 percent less than ours. Whereas if we compare prices with our neighbour Sri Lanka, they are 15 percent less and China is 2 percent less.

Locally decreasing fuel tax can decrease fuel prices, but globally prices are set by supply 
and demand, and therefore fuel tax decreases have no effect on fuel prices, and fuel tax increases actually decreases fuel prices by reducing demand. There is a need for better internal fuel pricing. We need a balance where one can enjoy affordable fuel prices. Oil companies are getting reasonable returns whereas our government gets the required revenue.

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