You pay Rs 30 tax on each litre of petrol

Published: 17 November, 2011 08:05 IST | Vinod Kumar Menon |

Should we be celebrating that after a Rs 2 price reduction, we get to pay Rs 71.47/l of petrol when we could actually be paying Rs 42.45, if Centre and state taxes were revoked?

Should we be celebrating that after a Rs 2 price reduction, we get to pay Rs 71.47/l of petrol when we could actually be paying Rs 42.45, if Centre and state taxes were revoked?

For the first time since the deregulation of petrol in June last year, consumers experienced the benefit of a slide in prices by Rs 2.34 since yesterday. Coming after several hikes, the revised price was received with cheers.

However, the dampener of taxes gives one enough reason to stop and wonder if it is indeed such a big benefit.

Overburdened: Petrol dealers agree that the taxes levied on petroleum
products are exorbitantly high, and that the government should step out
of the petroleum sector altogether.
Representation pic

So, we pay Rs 71.47 per litre of petrol instead of Rs 73.81. But figures say that we could be paying as little as Rs 41.45 per litre for petrol, dealer's commission included. It is actually the taxes that inflate the cost.

Here's how
A senior official from Bharat Petroleum explained to MiD DAY that currently, the retail selling price of petrol per 1,000 litres in Mumbai is Rs 71,470 (Rs 71.47 per litre). If one subtracts the central government taxes (excise duty, cess charges) of Rs 14,781 per 1,000 litres (Rs 14.78 per litre) and the state government taxes (VAT, Octroi and toll charges) Rs 15,232 (Rs 15.23 per litre), the cost of petrol before taxes including dealer commission is Rs 41,457 per 1,000 litres of petrol (Rs 41.45 per litre).

The actual tax component on petrol works out to be a whopping Rs 30,013 per 1,000 litre (Rs 30.01 per litre) out of the total.

Another official from an oil company explained that since the decontrolling of petrol, prices are determined basically on two factors -- price of petrol in the international market and value of rupee against dollar. So every time the rupee falls against dollar, the three oil marketing companies -- Indian Oil Corporation, BPCL and HPCL -- face an increase in the cost of procurement, which has an adverse impact.

Losses to subsidies
As far as diesel, LPG and kerosene are concerned, it is only because the government has regulated their selling price that the common man is not facing the pinch at present. 

"The government currently subsidises diesel by Rs 10.17 per litre, kerosene by Rs 25.66 per litre and cooking gas (LPG) by Rs 260 per cylinder. These are the huge subsidies the government is giving to safeguard the larger interests of people who deserve them. While petrol is being sold at the market-driven price," the official explained.

Due to the subsidies, the oil companies face massive under-recoveries.

The daily under-recovery of BPCL on diesel is Rs 55 crore; on kerosene (PDS) is Rs14 crore and on LPG (domestic) is Rs 18 crore.  The combined under-recovery of the oil marketing companies on diesel is Rs 218 crore; on kerosene is Rs 73 crore; and on LPG is Rs 76 crore.  The projected total under-recovery of BPCL for 2011-12 (excluding MS) is estimated to be over Rs 30,000 crore and for OMCs together at a level of Rs 1,30,000 crore. 

'Leave oil cos alone'
Ravi Shinde, president of city-based Petrol Dealer Association which has 250 petrol pumps in Mumbai and around 2,800 petrol pumps across Maharashtra registered as members, admits that taxes levied on petroleum products are exorbitantly high and half of the money paid by customers is used to fill the coffers of state and central governments.

"The government justifies the high taxes by saying that they give huge subsidies on diesel, kerosene and LPG, so they have no option but to levy taxes on petrol. It should actually step out of the petroleum sector and allow the three oil marketing companies to compete with each other. Only then the customer would be relieved of the heavy taxes they have to pay at present. Also, there is a huge disparity between the selling price of diesel (approximately Rs 48/l) and kerosene (approximately Rs 17) and this is a primary reason for unscrupulous elements to indulge in adulteration."

"A Re 1 price rise in diesel is equivalent to Rs 4 increase in petrol, because the consumption of diesel is 70 per cent of the petroleum sold. The under-recoveries that the oil marketing companies are suffering today will be a matter of the past, as they can plan their purchases of crude the way they like, but only if the government steps out," explained Shinde.

C R Menon, who works as a manager with a financial institution, sold one of his two petrol cars recently, as he could not afford the increasing petrol cost.

He said, "I was eligible for a basic quota of petrol reimbursement from the company, which was a fixed component of my cost to company (CTC), as the prices of petrol went up. The company's stand did not change towards petrol reimbursement. Till some time back, the second car was a luxury, but with petrol prices skyrocketing, it started becoming a liability. So I decided to dispose of one vehicle."


Earlier people who had to travel 70 km per day would only prefer diesel or alternative fuel models. But now because of fear of petrol prices going up day by day, people are ready to pay additional premium for alternative fuels.
Kiran Vanjara, deputy sales manager at Automotive Manufacturers Pvt Ltd
Both the state and central government imposes heavy taxes on petrol, due to which there is a swing from petrol to alternative fuel vehicles. The government should have some clear policies in mind for the auto industry -- there is no clear policy at present and it just adds to the confusion.
Hormazd Sorabjee, Autocar India

Some 15 to 20 years ago, the taxation on petrol was in paise which was later converted into percentage. No one objected then, as the price hike was negligible. Now, Maharashtra not only pays the highest tax on petrol but also on vehicles -- the tax component is as high as 50 percent of the price of vehicle. The need of the hour is to find alternative modes for saving fuel, or else soon we will have a scarcity.
Nitin Dossa, executive chairman, Western India Automobiles

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