Business Today

Govt flogging petrol users

The government has been relentlessly hiking the price of petrol and burdening it with heavy taxes as it sees it essentially as the rich man's fuel.

S.P.S. Pannu | May 17, 2011 | Updated 13:27 IST

The government has been relentlessly hiking the price of petrol and burdening it with heavy taxes as it sees it essentially as the rich man's fuel. However, this does not seem to be the solution to the oil sector's problems that run much deeper.

Official data reveals that while the consumption of petrol in the country ranges between 1.1 to 1.2 million tonnes a month, that of diesel is nearly five times as much at five to 5.5 million tonnes each month.

A senior Indian Oil Corp (IOC) official told Mail Today that given the much higher volumes of diesel sold in the market, any increase in the price of the fuel brings in more revenue than petrol. The lower volumes of petrol cannot cover up the huge gap created by selling diesel, kerosene and LPG below market price, he explained. However, while petrol price has been raised by as much as 32 per cent in eight successive hikes during the last 11 months, the government has been shying away from raising the price of diesel even though the underrecoveries are much higher at Rs 18 per litre.

The gap between petrol and diesel prices has now gone up to a whopping Rs 25 per litre and this is also causing a shift in demand towards diesel-fuelled cars and sports utility vehicles (SUVs). Oil company officials also say that the concept of petrol being purely a rich man's fuel needs to be revisited since two-wheeler and small car owners also use petrol to run their vehicles.

The IOC official said that the base price of petrol is currently at around Rs 36.52 a litre, while the rest of the price component consists of various Central and state levies. Excise duty and other Central government levies on petrol add up to over Rs 30 per litre. In addition, the Delhi government imposes a 20 per cent sales tax on the fuel.

In contrast, the levies on diesel, which is considered to be a fuel used by the vote-catching farm sector and public transport utilities, attracts much lower taxes. While the Central government's levies on diesel work out to around Rs 10 a litre, the state government imposes a lower 12.5 per cent sales tax. Interestingly, the retail price of both fuels include a customs duty element, even though they are produced within the country and are not imported.

The oil marketing companies say this duty is included as it enables them to pass on a part of the five per cent customs duty that the government levies on crude oil imports to consumers. Senior officials of the oil companies are of the view that it makes little sense to levy this customs duty on crude oil, as refined products such as diesel, LPG and kerosene have to be sold at subsidised prices.

"The finance ministry first takes away the money from the oil companies in the form of tax as it wants to reduce the fiscal deficit but has to give the money back to the oil companies as compensation for the subsidy," an oil company official said. "In the process a lot of time is lost and the oil companies have to borrow money at high rates of interest to finance crude imports," he explained.

The fact that the customs duty is levied on the value of the imports makes matters worse as each time the price of crude goes up the duty that has to be paid also increases, putting a greater burden on the oil companies and the consumers. 

Courtesy: Mail Today 

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