Kolkata: In order to save the oil marketing companies from disaster, the Centre has already reduced excise by Rs 10 per litre on petrol and diesel. Now
the spotlight is gradually swiveling to the states, which earn a lot of revenue from these items.
Ironically, the states are earning more revenue from petrol and diesel since the VAT they charge is ad valorem. Now the question is how much to they earn and are the states going to sacrifice a part of their revenue too to add to the relief to the oil marketing companies? SBI Research has suggested that Indian states can now cut VAT to add to the relief after the Central cut of excise.
After the war began between the US-Israel combine and Iran, crude prices all over the world has surged from about $70 a barrel to about $115-120 a barrel. As on March 26, the Indian basket of crude oil averaged at $115.75/bbl after declining from a peak of $156.29 per barrel on March 19. Since India depends overwhelmingly on imports of crude oil, the oil marketing companies such as IOC, HPCL and BPCL had to import them at much elevated prices. These companies could not pass on the higher prices to the public and were facing heavy losses.
How are petrol and diesel taxed
In India, petrol and diesel suffer the highest taxes in the world. In other words, the government at the Centre and the states milk these products to earn a lot of revenue. The taxes that are typically realised from petrol and diesel are:
- Base price of crude oil
- Excise duty
- Dealer’s commission and charges
- VAT (Value Added Tax)
- Cess
Besides these taxes, Agriculture Infrastructure and Development cess and Road and Infrastructure cess are also realized from petrol and diesel. Crude oil prices, dealer’s charges and excise duty are the same all over the country. However, the states decide their own VAT leading to a difference in the prices of these two essential fuels from state to state.
Top 5 states earning the most from VAT
According to a data compiled report by various agencies, VAT stands at as high as 35% in Telangana and above 30% in at least three states. Let’s have a look at the top five states in terms of raising revenues from petrol and diesel.
Telangana: 35.2% VAT
Andhra Pradesh: 31% VAT + cess
Kerala: 30% VAT + cess
Karnataka: 29.8% VAT
Madhya Pradesh: 29% VAT
Rajasthan: 29% VAT
The question, whether states will reduce VAT is difficult to answer. Since various state governments follow different policies, it might not be easy for them to reach a common ground and initiate a reduction in the revenue they earn from petrol and diesel.
