Do states pay double the tax Centre is paying for fuel? Note true when one makes a closer look

Do states pay double the tax Centre is paying for fuel? Note true when one makes a closer look

New Delhi, September 22: Global crude rates halved over the same period. Indians at the same time wonder why they have to pay more for petrol and diesel.

Centre states that it should cut fuel prices as the states are earning more taxes on petrol and diesel. According to BJP, states owned almost double of what the Centre did from fuel prices.

BJP’s statement is not true when one make a closer look over the matter.

Here is the price breakup of petrol in Delhi and the share of taxes between the Centre and states:

— Cost of per barrel of petrol and freight charges (as on 14 Sept): $65.48/bbl

— Average exchange rate: $/Rs64.08

— Price paid by oil companies to refineries: Rs 26.65/Ltr

— Price charged to dealers (by oil companies): Rs 30.70/Ltr

Add to this:

• Excise Duty: Rs 21.48/Ltr

• Dealer Commission: Rs 3.24/Ltr

• VAT (including VAT on dealer commission) applicable for Delhi @ 27%: Rs 14.96/Ltr

Retail Selling Price in Delhi – Rs 70.39/Ltr

Now, let’s take a look at the share of the Centre and the state of Delhi in the levies on petrol.

The excise duty of ₹21.48 goes to the Centre. States get the proceeds from VAT and cesses. In the case of Delhi (which does not charge any cess), it amounts to Rs 14.96.

In addition to VAT, Delhi would also get 42% of the basic excise duty from the Centre as part of a formula on sharing of taxes between the Centre and states under the 14th finance commission.

This is where the BJP’s tweet goes wrong. It assumes that states receive 42% of the total excise duty of Rs 21.48.

The excise duty has three components: An additional duty (Rs 6), a special additional duty on excise (Rs 7) and a basic excise duty (Rs 8.48), adding up to Rs 21.48.

States receive 42% of only the basic excise duty from the Centre.

In the case of Delhi, it gets VAT (Rs 14.96) and 42% of the basic excise duty (Rs 3.56), taking the state’s total earnings to Rs 18.52 per litre of petrol sold. The Centre’s share is Rs 17.92.

At a time of when subdued tax collections and disruptions from demonetisation and GST have slowed down economic growth, the central government would find it near impossible to cut the duty on petrol and diesel.

Excise duty on petro products account for 50-55% of the total excise collection by the Centre.

Indeed, states too are in a Catch-22 situation. Finances in most states are dire, and a cut in excise duty on fuel would reduce their share from the central pool.

The Centre can hope for either of these two to happen: International crude prices soften in the coming days or the festive season spending boost indirect tax collections, giving the government some elbow-room to reduce the duty on petro products.

But with output falling from OPEC, the bloc of oil producing countries, for the first time in five months and demand for oil strengthening, international crude prices may not soften in the near term.

(Inputs from agencies)

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