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Saturday, July 2, 2022

Pinching Petroleum Price – International Obligations, Taxation woes, and Hyprocisy of our Opposition

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The price of petroleum in India is an extremely sensitive issue, we have seen how it raises the anger among the public, which sometimes result in fall of governments. Crude oil prices in the international market have been quite volatile for some time now, due to which the prices of oil petroleum are also rising wildly. Rising oil prices impacts everyone, as it has cascading effect on almost everything, which led to an increase in inflation.

Why Crude Oil price are increasing?

Well, its all demand-supply equation that decides the price of crude oil. It started when Covid Recession hit the world nearly two years ago, when oil prices tanked along with the stock market and global economies. In order to protect citizens, governments rapidly imposed lockdowns and reduce the economic activities. This drove unprecedented economic disruptions, resulting in low energy demand and falling oil prices.

In April 2020, a tussle between Saudi Arabia and Russia over oil production cuts in response to the new Covid-19 pandemic also caused the price of oil to fall to historic lows. This is the time when India’s central government and state government’s increased the tax on petroleum to offset the loss they were facing due to crumbling economic activities.

The Oil demand came back strong later in 2020 as governments pumped trillions of dollars into the global economy to support unemployed workers. By early 2021, the crude oil raised back to pre-pandemic price levels. But now the oil producing nations were unable to keep up with the recovering demand, which led to unprecedented rise in crude oil prise.

Russia’s war in Ukraine again caused crude oil prices to briefly rise above $100 a barrel. The recent attack of Iran-supported Houthis rebels on Saudi Arabian Aramco’s facilities will also push the oil price higher in near future.

How Oil price is impacting India?

Well, india was somehow managing the domestic oil price, but now the prices have been increased. As expected, the opposition was waiting for this god send opportunity, and they have recieved it with both hands.

The Congress has annouced that it will start a three-phase campaign called ‘Mehngai-mukt Bharat Abhiyaan’ in protest of soaring fuel prices and the cost of other commodities. It will organise rallies and protest marches across the country from March 31 to April 7.

On 31st March, Congress will observe March 31 as Gas Cylinder Shaheedi Diwas. From April 2 to April 4, the Congress will organise sit-in protests and marches at the district and block level across the country. On April 7, the party will organise Mehngai-mukt Bharat demonstrations at all state headquarters with the help of NGOs, social and religious organisations.

Members of Opposition parties, including those from the Congress, TMC and DMK, walked out of the Lok Sabha on Tuesday, demanding a rollback of the fresh hike in the price of petrol, diesel, and cooking gas.

Why Opposition is showing a sheer hyprocrisy on Petroluem Price?

Last year, a day before Diwali, the Central government announced a drastic slash in excise duty, which made petrol and Diesel cheaper by Rs 5 and Rs 10 respectively. Twelve Bharatiya Janata Party-ruled states and Odisha announced a cut in the value added tax on fuel after the Centre slashed excise duty on petrol and diesel.

  • Assam, Goa, Tripura, Manipur, Karnataka and Gujarat reduced the value added tax on both petrol and diesel by Rs 7.
  • The Uttarakhand government reduced the petrol price Rs 7. Uttar Pradesh has reduced the prices of petrol and diesel by Rs 12 per litre. Haryana government has reduced value added tax on petrol and diesel, making the fuels cheaper by Rs 12 per litre.
  • Bihar, which is ruled by BJP’s ally Janata Dal (United), announced that the prices of petrol would be reduced Rs 3.20 per litre and diesel by Rs 3.90 a litre.
  • Sikkim, which is governed by the Sikkim Krantikari Morcha, announced that petrol and diesel prices have been reduced by Rs 7. The Sikkim Krantikari Morcha is a constituent of BJP-led National Democratic Alliance.

However, none of the opposition ruled state reduced the value added tax. Later Delhi and Punjab were also reduced it, because of obvious reasons.

Tax Structure on Petroleum products

The retail price of petroleum is made up of 3 different components – base price that reflects the cost of international oil, central excise duty and state taxes. Both central and state governments rely heavily on collections from taxes to meet their public welfare and developmental initiatives.

The Central government taxes (Excise Duty) the production of petroleum products, while States impose tax (VAT, Sales Tax and other surcharges) on their sale. As per the Petroleum Planing & Analysis Cell, Ministry of Petroleum & Natural Gas, the Central excise duty is fixed ₹27.9/litre, over and above everything else is VAT tax and other surgharges applied varies across states.

Here it is important to know that unlike Excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product. This means that value of excise duty is fixed but the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.

Here we must know that Central government keeps only 58% of the revenue from the Excise tax, while the remaining 42% is required to be devolved to the state governments as per the recommendations of the 15th Finance Commission. These devolved taxes can be utilized by the state governments according to their own discretion.

How much Tax do we pay for ₹100 worth of Petrol?

Well, this is quite an interesting insight, as you must know how much tax you pay when you purchase Petrol or Diesel of worth Rs. 100.

Picture Credit- Stats Of India

In 7 states, half of what you pay is collected as tax.

Maharashtra 52.5, Andhra 52.4, Telangana 51.6, Rajasthan 50.8, MP 50.6, Kerala 50.2, and Bihar 50.0

In these 3 states, State taxes are higher than Central excise duty tax.

Maharashtra
Andhra Pradesh
Telangana

In includes VAT, cess, etc.

I hope this map will help you understand the value of tax you pay while purchasing Rs. 100 worth of petroleum product.

Conclusion

The retail pump rates are governed by international prices as India is 85 percent dependent on imports for meeting its requirements.Oil companies revise the fuel prices on the basis of the cost of benchmark fuel in the international market and foreign exchange rates. Hence, we can say the Petroleum price is something that isn’t under our control.

What governments can do is reduce the excise and sales tax to provide some sort of relief to the consumers, but that is again challenging as governments are left with very few revenue options, and since last 2 years, everyone is trying hard to recover from COVID’s massive impact.

Last year the Center government reduced the excise duty, then BJP-led and few other states also reduced sales tax and VAT accordingly to provide relief to their respective citizens. However, most of the Congress led and other opposition ruled states have not taken any action on this front, but they are the ones who are making lot of noise on petroluem price and crying foul for so called people’s welfare, but not reducing state imposed taxes.

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