Vignesh Radhakrishnan
The story so far: Petrol is retailing at more than ₹100 a litre across India. The primary reason for the increase in pump prices over the past few years is the gradual rise in the Union government’s excise duty component. The excise duty was cut by ₹5 per litre last November. While some States followed with a cut in value-added tax (VAT), many others did not. On Wednesday, Prime Minister Narendra Modi said fuel prices were too high in some non-BJP-ruled States as they did not “pass the benefits of the Centre’s excise duty cut” to consumers. He said States such as Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala and Jharkhand did not reduce VAT last November while Karnataka and Gujarat did so.
By how much has the Central tax on fuel increased?
In October 2018, the Central excise duty on petrol amounted to ₹17.98 per litre. In February 2022, it increased to ₹27.9 per litre of petrol. In this period, the Centre’s tax component expanded by about ₹10 per litre of petrol.
By how much has the tax levied by States risen?
As on February 2019, Kerala charged 30.08% as sales tax along with ₹1 a litre additional sales tax, plus 1% cess. Telangana charged 35.2%. West Bengal charged 25% or ₹13.12 per litre whichever was higher, with minor additional components. None of the three States had made any increases to the rates till April 2022. Tamil Nadu charged 34% VAT on petrol as on February 2019. In 2022, the tax structure has changed to 13% VAT plus ₹11.52 a litre.
In the period under review, Andhra Pradesh and Maharashtra (Mumbai)’s tax on petrol has risen by ₹3 a litre, whereas Karnataka’s sales tax rate declined from 32% to 25.92%, and Gujarat’s from 17% to 13.7%. In the non-BJP-ruled States, in this period, tax rates increased between nil and ₹3 per litre, whereas in the BJP-ruled States, tax rates declined.
How can the impact of States’ taxes and the Centre’s excise duties on petrol be measured?
One way to do this would be to compare the Centre’s excise duty collections on crude oil and petroleum products, and the States’ VAT collections on petroleum products, as a percentage of GDP. Between FY15 and FY21, the Centre’s tax collections have increased from 0.79% of GDP to 1.88% of GDP. In the same period, States’ tax collections have marginally declined from 1.1% of GDP to 1.02% of GDP. Another measure would be to compare the Centre’s tax share in the retail price of petrol with State’s tax share. For instance, in Delhi, the Centre’s tax share currently forms 26.4% of the retail price. In May 2014 it was around 14%. The State’s tax share currently forms 16.25% of the retail price, compared with 17% in May 2014. So, both in terms of percentage of GDP and retail prices, the States’ tax collections have remained the same or even slightly declined, whereas the Centre’s tax collections have climbed sharply.
