The Telegraph
Since 1st March, 1999
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A cheap-petrol pipedream without oil for Delhi money machine

New Delhi, April 20: Do you know you could buy petrol — in India — at Rs 13.50 a litre' And at a price lower than that of diesel, if only by 20 paise'

You can’t because of the government. The Centre and states collect the difference between Rs 13.50 and the price at which you buy petrol, which now costs Rs 32.49 in Delhi where it is the cheapest among the metros.

Diesel, minus taxes, would have cost Rs 13.70 a litre. Its current Delhi price is Rs 21.12.

Truckers, on strike across the country, are protesting against a 50-paise levy slapped on petrol and diesel in this year’s budget that has raised prices again. They have other grievances, which may or may not touch a chord among people, but their action has again brought the element of tax in petroleum prices in focus.

At current petroleum prices and rates of taxation, Central and state taxes work out to around Rs 20 for petrol and Rs 10 for diesel, both per litre.

Local levies vary from state to state. In Mumbai, for instance, petrol costs the most among metros at Rs 37.52. So does diesel.

Even accounting for interstate differences, Union and state taxes comprise as much as 60 to 65 per cent of the retail price of petrol and about 40 to 50 per cent of diesel.

From every litre of petrol, the Centre collects Rs 14.50 and states the rest. The Delhi government, for example, takes Rs 4.49.

Petrol is taxed more because it is considered the rich man’s fuel, while diesel gets more respect because it is used in the politically sensitive transport and farm sectors.

Why are the taxes so high' First, because petrol has traditionally been used in India to subsidise diesel, kerosene and cooking gas. But after partial dismantling of government-controlled pricing, petrol and diesel are now linked to international prices.

Kerosene and cooking gas continue to be subsidised but the subsidy is shrinking and will shrink more. Or so the government has threatened.

Equally important, however, is the convenience in taxing petroleum as opposed to the difficulty in making people pay income-tax, for instance. Evasion is widespread in income-tax, sales tax and excise and the government has not been able to do much to contain it.

There is another benefit. Every time now international prices go up, prices in India rise, and the tax shoots up, too. Because the tax is collected as a percentage of the price. And this happens without much of a public outcry as the government does not have to make an announcement raising taxes, as it has to for income-tax or any other levy, often inviting huge protests.

Petrol and diesel prices were increased five times this year — the total impact adding up to Rs 4.57 and Rs 4.06 per litre, respectively — as international rates jumped in wake of the Iraq crisis. High prices are good for the government because it collects more taxes.

To protect the consumer from the burden of higher tax every time the price goes up, the petroleum ministry had recommended a flat rate of levy on every litre of petrol and diesel. Similarly, it had suggested that the import duty on crude oil should be collected at a flat rate.

It had pointed out that western countries and Japan follow this flat-rate system. Struggling to rein in the fiscal deficit, the finance ministry declined to let such easy pickings slip out of its hands.

If anything, the trend is in the reverse direction — wring petroleum as much as possible to finance dreams in high places. First, there was a Re 1 per litre cess on diesel and petrol to finance Prime Minister Atal Bihari Vajpayee’s Rs 54,000-crore national highway project.

Encouraged by the experiment, another 50 paise was loaded on in Jaswant Singh’s first budget this year to finance road development.

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