Greedy Govt : Huge taxes keep petrol, diesel prices high

New Delhi: Oil companies may have provided relief to consumers by keeping the pump prices of petrol and diesel static for the past nine days even on rising global oil prices, but it is the heavy load of taxes that has kept the two auto fuels price closer to all-time high levels now with the pandemic-affected revenue stream preventing the government from considering a duty cut.

Taxes and duties now account for 62.5 per cent of the retail price of petrol and 57.77 per cent of the retail price of diesel in the capital at current level of pump prices.

The taxes component has fallen over the fortnight as global price of petrol and diesel has also risen in past few days. Otherwise taxes were well over 70 per cent of the retail price of petrol till the start of the month.

What the higher level of taxes means is that the bulk of the retail price a common man pays to get fuel is tax and if the government would not have targeted petrol and diesel to raise revenue every time there is a pressing need for it, the fuel prices in India today would have mirrored retail prices prevailing decades ago (in 2003) and closer to what consumers in oil-rich countries in the Gulf pay.

The current state tax (VAT) rate on petrol and diesel has risen to Rs 19.32 and Rs 10.85 per litre, respectively, in Delhi. Similarly, the Centre's decision in May to raise excise duties on petrol and diesel by Rs 10 and Rs 13 per litre, respectively, had taken up the component of this tax on retail prices by Rs 32.98 on petrol and Rs 31.83 per litre on diesel.

So, the total tax component (central and state in Delhi) is Rs 52.30 a litre on petrol and Rs 42.68 on diesel. Compare this with the base price of the two products today and the tax load becomes clearly visible.

The base price of petrol currently is a mere Rs 27.37 a litre and diesel is just Rs 28.32 a litre.

The base price was much lower till a fortnight ago meaning that the two products are being heavily milked for revenue at the cost of consumers who are at the receiving end of the pandemic bearing higher prices for both food and fuel.

Together with central and state taxes, freight, and dealers' commission, petrol on Wednesday was priced at Rs 83.71 a litre in Delhi while diesel's current selling price stands at Rs 73.87 a litre.

"Auto fuels comprise 20-30 per cent of revenue of state governments while it forms a significant portion of excise revenue for states. As the fuel is still out of GST raising duties is easier for both the Centre and states that target the product to raise revenue whenever there is an emergency. But high set price of fuel also adds inflationary pressure on the economy that would just not be right at this juncture when the country is fighting the coronavirus outbreak," said an oil sector analyst not willing to be named.

According to analysts Rs 5 per litre increase in retail price of petrol and diesel could add up to 0.5 per cent to retail inflation that stood at high level of 6.94 per cent in November.

After maintaining low levels, global oil prices have now risen expecting a demand pick up after the news of a successful coronavirus vaccine broke.

While oil companies had kept retail prices from falling consistently in August, September and October even though global oil prices remained soft, they have regularly raised the retail prices since then to bring the pump prices closer to all-time high levels seen in October 2018.

The retail price rise has been held back for the past nine days even though there is a case for it as crude has crossed $50 a barrel.

But, the government has still not shown any inclination to revise the taxes downwards as it was decided earlier to manage extreme volatility. The taxes on the two petroleum products have risen on many more occasions in last few years than a cut in taxes.

Sources said that the government has now indicated that even with higher central duty, there would not be any increase in retail price of petrol and diesel. Oil companies have built enough buffer in past few days by not revising pump prices and jacking up their marketing margins. The high marketing margin with OMCs will prevent further increase in auto fuel prices.