If state government follows Goa’s example of doing away with sales tax on petrol, the fuel will become cheaper by roughly Rs 15 a litre in the four metros. The reduction will be higher in states that tax the fuel at a higher rate.
Goa CM Manohar Parrikar on Monday proposed an 11% reduction in VAT (value added tax) on petrol in the state’s budget. The fuel costs Rs 65.61 a litre in Panjim. After the reduction takes effect on April 2, the price will come down to about Rs 55 a litre.
Taxes on Petrol:
Central and state taxes make up nearly half of petrol’s pump price. The Centre levies a specific excise duty of Rs 14.35 a litre and 3% education cess to mop up Rs 14.78 out of Rs 65.64 a litre that consumers pay for a litre of petrol in Delhi.
The Delhi government makes Rs 10.94 by charging VAT at 20%. The state’s take also includes VAT on dealer margin of Rs 1.49 per litre. The government’s earning stood at Rs 7.99 on a litre when petrol cost at Rs 47.93 a litre in June 2010, when the fuel was decontrolled.
The Central and the state governments pocket Rs 25.72 from sale of each litre of petrol in Delhi. State-run fuel retailers actually sell the fuel to dealers at Rs 38.42 a litre. This, one could say, is the price of the product after paying for refining, transporting and other sundry costs as well as giving allowance for loss from evaporation.
State governments levy VAT on Petrol ranging from 15% in Puducherry to 33% in Andhra Pradesh, making it a major source of income.
Finance minister Pranab Mukherjee said as much in Parliament on Tuesday. “Price without tax – I am taking Delhi city – per litre of Petrol price would be Rs 39, diesel would be Rs 33.51, kerosene would be Rs 14.12. For kerosene, there is hardly any tax. The Central government does not have any tax. Some states have some tax, that is 4.8%; but Centre has no tax. If the excise duty, customs duty and state VAT taken together, it comes to Rs 26.55,” he said while replying in the debate on the Finance Bill.
But he was also candid enough to point out that it was not easy for the states to give up a major source of revenue. “I cannot tell the states, that you sacrifice almost half of these because they will say: Where will we get the money?”
MoS for parliamentary affairs Rajiv Shukla told reporters outside Parliament the state government get about Rs 1.6 lakh crore as tax from petroleum products. No wonder, states have not responded much to successive oil ministers asking them to reduce Petrol and diesel taxes. Shukla threw a political gauntlet at the BJP-ruled states, saying they should emulate Goa.
Petrol price in Goa:
The fact that prices of Petrol in Goa will comedown by Rs 11 per litre simply by reducing the value added tax on Petrol, only shows up how large a proportion of the final price is made up by taxes. It also means that when the international price of oil is high, there is considerable scope for governments at the states and the Centre to reduce taxes to lighten some of the impact. After all, with the same percentage of the basic price as tax, governments get a much larger absolute sum when prices rise. It makes sense for them to forego this windfall gain to spare the consumer some of the inevitable pain.