Your fuel bill would be drastically lower sans govt”s greed for revenue

You must be wondering why the current freefall in the global oil market is not resulting in commensurate or sharp fall in retail price of petrol and diesel.

The answer lies in a plethora of taxes that both Central and state governments levy on the two auto fuels that rob the customers of the real gains that accrue from a subdued oil market.

The current base price of petrol stands at just Rs 27.96 a litre while diesel at Rs 31.49 a litre in Delhi (as on March 16, 2020). But customers were paying Rs 69.59 and Rs 62.29 for the two petroleum products, respectively, at the pumps in Delhi on Thursday. Bulk of the retail price consists of taxes that are levied by both the Centre and state governments and forms an important revenue sources for them.

Central taxes (excise duty) on petrol and diesel stands at Rs 22.98 and Rs 18.83 per litre, respectively, while Delhi levies a VAT of Rs 14.79 per litre on petrol and Rs 9.19 per litre on diesel, effectively taking the total tax component on the two auto fuels to a staggering 54 per cent in the case of petrol and 45 per cent in the case of diesel.

The component of taxes is much higher in Maharashtra, Tamil Nadu and few others states that keep petrol and diesel retail prices much higher for customers in these states.

“Even though petrol and diesel prices have been freed from the administered price mechanism, high level of taxes and the invisible control that the Centre exercises on public sector oil companies prevent market forces from taking over auto fuel pricing, keeping customers away from the gains that could have accrued in this market where crude prices have settled at just around $25 a barrel now,” said an oil sector analyst with one of the big four consultancy firms asking not to be named.

So, though the base price of petrol and diesel has fallen by a staggering Rs 7-8 per litre since January 2020, higher level of taxes, which is levied at fixed rate, has kept the retail prices from falling commensurately.

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