Total tax on petrol down to 50%, diesel to 40% after duty cuts

Retail price of petrol and diesel is decided after adding central excise, commission paid to dealers and value-added tax (VAT) to basic oil prices

The total incidence of taxes on petrol has come down to 50% and that on diesel to 40% following a reduction in excise duty by the Central Government, and by a slightly higher proportion in States that have also cut local sales tax or VAT on the fuel.

The retail price of petrol and diesel is decided after adding central excise, commission paid to dealers and value-added tax (VAT) to basic oil prices. The basic oil price is the prevailing international benchmark rate plus freight.

On November 1, prior to the duty cuts, central excise of ₹32.90 a litre and VAT of 30% in Delhi made up for 54% of the retail selling price of diesel, according to price build-up of the fuel available from State-owned fuel retailers.

This, after the ₹5 per litre reduction in excise duty, has come down to 50% in Delhi.

Two dozen States and UTs have matched the central government’s excise cuts with a VAT reduction. And, in those States, the percentage of taxes in retail price will be marginally lower. Delhi has not yet lowered the VAT.

Similarly, on diesel, the central excise duty of ₹31.80 per litre and 16.75% of VAT plus air ambience charges of ₹250 per kilolitre, brought the total incidence of taxation in Delhi to 48%.

This, after the ₹10 a litre cut in excise duty, has come down to 40% in Delhi. In cases that have cut VAT, the incidence will be even lower.

Basic price, which includes the cost of oil plus freight, varies between ₹52.01 a litre in Chennai to ₹59.89 in Ladakh. On top of this, the central government charges an excise duty of ₹27.90 which is paid at the factory gate (refinery in this case). Thereafter, the State Governments levy different rates of local sales tax or VAT.

Rajasthan has the highest VAT on petrol of ₹30.51 a litre, followed by Maharashtra with ₹29.99, Andhra Pradesh (₹29.02) and Madhya Pradesh (₹26.87). The lowest VAT of ₹4.93 a litre is levied in Andaman & Nicobar.

Similarly, the basic price of diesel varies from ₹52.13 a litre in Chennai to 59.57 in Ladakh. On top of this, the central government charges an excise duty of ₹21.80.

The highest VAT of ₹21.19 a litre is levied in Andhra Pradesh, followed by ₹21.14 in Rajasthan and ₹20.21 in Maharashtra. Himachal Pradesh levies the lowest VAT of ₹4.40 a litre, and Andaman & Nicobar charges ₹4.58.

Petrol pump dealers are paid ₹3.85 per litre commission on petrol and ₹2.58 on diesel.

Petrol prices have been further reduced by as much as ₹8.7 per litre and diesel ₹9.52 in BJP-ruled States and Union Territories — from Ladakh to Puducherry — after they matched the central government’s announcement of a cut in excise duty with slashing of VAT.

Buckling under pressure, the Union government had last week cut excise duty on petrol by ₹5 per litre and that on diesel by ₹10 a litre to give reprieve to consumers battered by record-high retail fuel prices.

This announcement was matched by 24 States and Union Territories cutting VAT rates in different proportions.

This has led to BJP and its partner-ruled States witnessing steeper reductions in petrol and diesel prices in comparison to Maharashtra, Delhi, West Bengal and other States that are governed by other political parties, according to a price chart of different locations prepared by State-owned oil firms.

The additional reduction, on top of the excise duty cut, is the lowest in Uttarakhand because of lower duty cuts and the highest in Ladakh. On petrol, the price reduction over-and-above excise reduction ranges from ₹1.97 per litre in the case of Uttarakhand to ₹8.70 in the case of Ladakh.

For diesel, the additional reduction warranted by VAT cuts, ranging from ₹17.5 a litre in Uttarakhand to ₹9.52 in the case of Ladakh.

The States that extended additional VAT benefits include Karnataka, Puducherry, Mizoram, Arunachal Pradesh, Manipur, Nagaland, Tripura, Assam, Sikkim, Bihar and Madhya Pradesh.

They also include Goa, Gujarat, Dadra & Nagar Haveli, Daman & Diu, Chandigarh, Haryana, Himachal Pradesh, Jammu & Kashmir, Uttarakhand, Uttar Pradesh, Odisha, Meghalaya and Ladakh.

States that have so far not lowered VAT include the Congress and its allies-ruled Rajasthan, Punjab, Chhattisgarh, Maharashtra, Jharkhand and Tamil Nadu. They also include AAP-ruled Delhi, TMC-governed West Bengal, Left-ruled Kerala, TRS-led Telangana and YSR Congress-ruled Andhra Pradesh.

Wednesday’s excise duty cut had translated into a reduction in the price of petrol in the range of ₹5.7 to Ras 6.35 per litre across the country and diesel rates by ₹11.16 to ₹12.88.

Since States charge VAT not just on the base price but also on the excise duty levied by the Centre, the total incidence of price reduction was higher than ₹5 a litre cut in excise duty on petrol and ₹10 per litre cut in diesel. The reduction was larger in States with higher VAT.

In Delhi, the reduction in petrol price was ₹6.07 per litre, and that on diesel was ₹11.75, according to the price chart.

After duty changes, the costliest petrol is sold in Rajasthan at ₹111.10 per litre (Jaipur), followed by Mumbai (₹109.98) and Andhra Pradesh (₹109.05). The fuel is below ₹100-a-litre-mark in most BJP-ruled States baring Karnataka (₹100.58), Bihar (₹105.90), Madhya Pradesh (₹107.23) and Ladakh (₹102.99).

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