Chief minister Nitish Kumar with NDA vice-presidential candidate Jaswant Singh and other leaders before a meeting in New Delhi on Thursday. Nitish, who returned to Patna later in the day, has promised to provide oil relief to the people of Bihar. (PTI)

Patna, July 26: Residents of Bihar will have to shell out more for petroleum products after the sudden revision of prices announced by oil companies yesterday. But few appeared to know why the prices were being raised.

The state-run oil firms issued a jargon-dripping statement, using words like “recalibration”, which made little sense to the person on the streets. Neither were Bihar government officials in the finance department willing to proffer any explanation as they themselves were still trying to dig deep.

The oil firms’recalibration — adjustments to reflect changes in state levies — led to a hike of Re 1 per litre on petrol, Rs 1.7 per litre on diesel, and Rs 9.5 per cylinder of domestic cooking gas.

For a change, the international market is not to blame — oil companies say the prices have gone up because of something called “irrecoverable” tax on petroleum products. A part of the tax that the state government collects from oil companies cannot be recovered from consumers or, in other words, cannot be added to the final selling price. This component is called “irrecoverable” tax.

The oil companies were partly compensated in a roundabout way through a “state surcharge”. The Centre sets this surcharge and consumers pay it.

Explaining the various rates of irrecoverable taxes being charged in Bihar, an oil marketing company’s official said the state government charges eight per cent entry tax on kerosene, 16 per cent on both petrol and diesel and four per cent on cooking gas. The government levies 10 per cent as surcharge on diesel apart from all other taxes.

These are the taxes imposed by the state government on oil firms but they are not allowed to recover these levies by passing them on to consumers, he said.

The Telegraph tries to explain the complex reasons cited for unleashing an unfamiliar beast that bureaucrats feel must not be explained.

Why are the people of Bihar paying more in comparison to some other states?

The Centre has allowed oil firms to charge a portion of taxes imposed by the state government on these companies. The oil firms, before Wednesday, were not allowed to recover these taxes by passing them on to consumers or to include these taxes in selling price. Apart from levies, the state government charges 24.5 per cent VAT on petrol, 18 per cent on diesel and one per cent on cooking gas. The government, which receives Rs 14.29 and Rs 6.87 respectively as taxes from the sale of each litre of petrol and diesel at current prices, had reduced VAT from 27 per cent to 24.5 per cent on June 4, 2008. The state cabinet had further reduced VAT on diesel from 18.36 per cent to 18 per cent on June 28, 2011.

What are the taxes and their quantum imposed by the state government which were, till Wednesday, not recovered by the oil firms?

The state government has imposed certain taxes — such as surcharge of 10 per cent on diesel and entry tax of 16 per cent on petrol and diesel and four per cent on cooking gas. So, for example, if after Wednesday’s hike, the “irrecoverable” component is Rs 1.6 per litre of petrol in Bihar, the decision to levy a “state-specific” cost of Re 1 means the oil companies are still not recovering around 60 paise. No one was willing to divulge the actual numbers.

Will there be another round of hike on account of realisation of levies by the oil firms?

If the Centre allows oil marketing companies to cough up all the irrecoverable taxes being levied by the state (Bihar) government, then the prices of both petrol and diesel could go up from Rs 3 to 5 per litre.

Why now?

The state surcharge, which the Centre sets for oil companies, has not been revised since 2003. However, in the past nine years, several states and the Centre have changed the taxes on petroleum products. Moreover, the crude oil prices have shot up in the intervening nine years. In states that lowered the taxes, the “irrecoverable” component had also shrunk. Which is probably why the prices have gone down in 11 states.

So, can we blame the Nitish government?

Questions can be raised on why the Nitish Kumar government is not reducing the state levies or the “irrecoverable” component — which can bring relief to the consumer. The state government has cited the financial crisis for not doing so.

Govt assurance

Chief minister Nitish Kumar has said the government would take all possible measures to provide relief.

“The government will discuss the impact of the fuel price hike on other commodities. We will discuss ways and means to provide all possible relief to the people,” Nitish said.

Deputy chief minister Sushil Kumar Modi, who also holds the finance portfolio, criticised the Centre for effecting the hike through the “backdoor” and described the move as “unjust”.