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Petrol prices : Have a heart, Sarkar!

Jaswant Kaur Jaswant Kaur
01 Mar 2021

It has hit 100. Generally, we would jump in excitement but no one seems to be happy. No, Virat Kohli has not hit a century against Pakistan or, for that matter, any other country. In fact, petrol prices have touched the Rs-100 mark in many states. This has actually triggered a debate. The Opposition has found a point to go against the government, while the consumer continues to feel the heat.
 
If we scan through newspapers or TV channels, much of the debate is focused on the tax that both the Centre and the states levy. The government claims that the global crude oil prices have risen by more than 50 per cent to over $63.3 per barrel since October 2020, forcing the oil retailers to increase the prices. This claim is not wholly true.
 
It is a fact that globally crude prices have started increasing due to the renewed demand as compared to the last year. However, in many countries,  the oil prices have not even touched India’s pre-pandemic retail price. And Indian consumers are shelling out a lot more.
 
Theoretically speaking, the Indian government has no control over the petrol prices. It was decontrolled or linked to the global crude prices, way back in June 2010 when the UPA government was in power. It means that retail oil prices increase with the increase in global crude prices and vice-versa.
 
However, technically speaking, it seems to be a one-way traffic. When crude prices start increasing, the resultant increase is passed on to the consumer, who bears the shock. When the prices slide, the government, be it at the Centre or in the states, slaps fresh taxes and levies. In other words, consumers do not get any benefit from the slump in the crude prices. The main beneficiary in both the cases is the government.
 
During the early months of the pandemic last year, the state-owned oil retailers stopped price revisions for about 82 days! This was the longest halt ever since the fuel prices were delinked in 2010. Incidentally, this was the time when global crude prices crashed substantially. In fact, the prices went into the negative in many oil manufacturing countries.
 
The government levied an additional excise duty of Rs. 13 a litre on petrol and Rs. 15 a litre on diesel in two instalments during March and May 2020. This has been a major source of revenue for the government during the lockdown. In other words, the Indian government saw an opportunity in the crisis.
 
Around seven years ago, the cost of crude oil prices constituted two-thirds of the retail price of petrol. Today, the taxes imposed by the Centre and the states account for nearly the same. In May 2014, the base price of petrol in Delhi was Rs. 47.12 per litre. This dropped to Rs. 29.34 per litre on February 1, 2021. The Central and state taxes have shot up by 137 per cent from Rs. 22.29 to Rs. 52.90 during the same period. Clearly, the consumer is the loser.
 
While the excise duty levied by the Centre is the same across the country, various state governments levy value-added tax (VAT) at different rates. The highest is in Maharashtra. Some state governments have come forward and reduced VAT to give some relief to the consumers. But the Centre has not given any such relief.
 
The only relief one might think of is the estimated excise duty collection in the Union Budget 2021. The figure is slightly less than last year. This gives an indication that the Centre might reduce the excise duty going forward.
 
Clearly, excise duty and VAT constitute one of the key sources of income for the Centre and the states. If one goes by the government data, over the last six years, the oil sector has become a major source of revenue for both the Centre and the states.
 
In 2014-15, the Centre’s gross tax revenue comprised a share of 7.90 per cent from the excise duty collections from petrol and diesel. This has shot up to 11.09 per cent in 2019-20. For the state governments, the VAT levied on fuel prices comprised 17.56 per cent of their tax revenue in 2014-15. This ratio has dropped to 14.93 per cent in 2019-20. However, revenue from other taxes have reduced considerably over this period of time.

 
Effectively, oil tax revenue of the Centre constituted 1.01 per cent to the gross domestic product (GDP) in 2014-15. This has increased to 1.41 per cent. If one reduces the indirect tax revenue from the oil sector, the overall tax contribution to GDP reduces from 8.95 per cent to 8.49 per cent. 

However, for the state governments, the ratio is slightly better. This only shows that the government’s dependency on oil tax revenue has considerably increased during the last few years. This could be partly attributed to the introduction of Goods and Services Tax (GST).
 
Although reports suggest that GST collection has been improving over the last few months since the lockdown was lifted, it does not show the actual revenue collection. The government might have crossed the Rs. 1 lakh crore mark during the last few months but it does not show the credit that goes back to the tax payees. Ever since the introduction of GST, there has been a consistent demand for including petrol and diesel also in GST. Clearly, this would have reduced the burden on the consumer.
 
However, going by the extreme dependency of the government on oil tax revenue, this seems to be a far cry. Even if petroleum products are put on a higher rate under GST, the Centre would lose a major part of the revenue in the form of refunds to the taxpayers and also tax revenue to be shared with the state governments. 

Also, a large part of the oil taxes consists of various kinds of cesses and surcharges, which at present, are not distributed among the state governments. In other words, including petroleum products under the GST regime, would amount to greater loss to the Centre than to the states.
 
Simply put, petrol and diesel would remain aloof from the so-called ‘one- nation-one-tax’ regime till the time the Centre finds an alternative source of revenue. This also shows that the projections of higher direct tax collections seem to be a mirage. The government needs to deep dive and introspect to overhaul its tax machinery.
 
The Prime Minister might have blamed the previous governments for their over-dependence on oil imports for meeting the country’s energy requirements. However, the fact is that the current government too does not have any alternative. True, we need cleaner sources of energy with much-better fuel efficiency. But that should not give the government an opportunity to tax the consumers. Why should ordinary Indians suffer because of faulty policies of the government, be it the previous or the current one?
 
It is also a fact that India’s richest 1 per cent hold more than four times the wealth held by 953 million people, the bottom 70 per cent of the population. And the total wealth of all Indian billionaires is more than the full-year budget of the entire country. Why can’t the government think of taxing these billionaires differently for giving some relief to the middle-class, which has a hand-to-mouth existence? Any clue, Madam Finance Minister?
 
The writer, a company secretary, can be reached at jassi.rai@gmail.com

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