Who Is Responsible for Fuel Prices Crossing Rs 100/L Mark – Centre or States?

Almost everybody has been severally impacted by the burgeoning fuel prices in the country over the last few months.Prime Minister (PM) Narendra Modi recently advised states to reduce the taxes they charged on fuel in order to give the common man some respite. This led to a debate between the Centre and the states over the indirect taxation on fuel, with states questioning the stand of the government in this regard.But why have fuel prices crossed the Rs 100 mark? Let’s look at the mathematics behind fuel taxation to understand who charges what on petrol and diesel. 'Injustice': PM Modi Hits Out at Opposition-Ruled States Over High Fuel PricesIn a virtual meeting with chief ministers of states on 27 April, PM Modi said that the Centre had reduced the excise duty on fuel in November 2021.Just before elections were held in five crucial states earlier this year, the government had reduced the central excise duty on fuel in November 2021 - the first reduction in three years. On 3 November, the government reduced petrol prices by Rs 5 per litre and diesel by Rs 10 per litre. Importantly, a day before the decision to reduce fuel prices was taken, the by-election results of three Lok Sabha and 29 Assembly constituencies in 14 states were declared. Opposition parties had alleged that the government decided to reduce the duty on fuel as the results were not favourable for the Bharatiya Janata Party (BJP).'Matter of Survival': Cab & Auto Drivers in Delhi Protest Soaring Fuel PricesAfter the excise duty on fuel was cut by the government in November, 19 states and seven union territories also slashed the VAT. These states were:1. Gujarat2. Uttar Pradesh3. Bihar4. Haryana5. Karnataka6. Madhya Pradesh7. Himachal Pradesh8. Uttarakhand9. Goa10. Assam11. Arunachal Pradesh12. Manipur13. Meghalaya14. Tripura15. Nagaland16. Tripura17. Sikkim18. Odisha19. Punjab20. Rajasthan21. Delhi (in December)Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Jharkhand did not reduced the VAT on fuel in November last year.The reduction in the central excise duty after the by-election results had given some respite to the common man.From 2 November to 22 March, there was no change in fuel prices. However, the situation drastically changed after the results of Assembly elections in Uttar Pradesh, Punjab, Uttarakhand, Goa, and Manipur were declared.Fuel prices were increased 14 times in 16 days. The price of domestic cooking gas cylinders was also increased by Rs 50, along with a Rs 250 hike in the price of commercial LPG gas cylinders. 'PM Abdicates Responsibility': Rahul, Mamata on Modi's High Fuel Prices JibeRahul Gandhi had also warned on 5 March of an imminent rise in fuel prices. "Get your petrol tank filled as the election 'offer' of Modi government is coming to an end," he had tweeted.Samajwadi Party (SP) MP Jaya Bachchan had also said, "Akhilesh Yadav had regularly warned you to be alert that prices will again go up after the election."Fuel prices are a massive determining factor during elections. This fact clearly comes to light on the basis of trends witnessed in the last five years.Assembly polls in Gujarat were held in December 2017. The fuel prices were stable for around one month in the run-up to the election, but prices were increased on 14 December, a day after polling concluded. Within one month of the counting of votes, petrol prices were hiked by Rs 2 per litre.In the run-up to the Assembly elections in Karnataka in 2018, there was no change in fuel prices for 20 days. Within 15 days of polling in the state, petrol prices shot up by Rs 4 per litre.During the Lok Sabha election in 2019, there was a slight change in fuel prices during the election. The polling in the last stage of the election took place on 19 May, a day after which petrol prices were raised by 10 paise per litre, while the price of diesel was increased by 16 paise.India's Oil Import Bill Jumps By Nearly 100 Percent in Financial Year 2021-22Similarly, there was no change in fuel prices in Bihar for 58 days in the run-up to the Assembly election in the state in October-November 2020. Within one month of the results being declared, the prices shot up by Rs 2 per litre.Five crucial states, namely Assam, Tamil Nadu, West Bengal, Puducherry, and Kerala, went to the polls in March-April 2021. There was no increase in fuel prices from 27 February onwards. However, fuel prices started to increase after the results were declared in May last year. By the first week of June, petrol prices were up by Rs 4 per litre. States have often been accused of not reducing the VAT on fuel, but it is easier said than done to do so. After the implementation of the Goods and Services Tax (GST), states do not have many avenues to earn revenue. GST collection first goes to the Centre and then it is reimbursed to the states. States, on their own, can impose VAT on fuel and excise duty on liquor alone.After the prime minister advised states to reduce VAT on fuel, many have raised concerns about difficulties in running the state without timely reimbursements of GST by the Centre. A few states have also demanded that fuel should be included under the GST regime."PM Modi should bring petrol and diesel under GST, and the same tax should prevail across the country," said Jharkhand's health minister Banna Gupta.Meanwhile, the Maharashtra CM's office had said that the state clocks the highest 15 percent of total GST in the country, but Rs 26,500 crore to the state was still due. West Bengal Chief Minister Mamata Banerjee had also said that the state suffered a loss of Rs 1,500 crore for subsidising fuel prices. "Rs 97 crore of the state is due with the Centre. We would give further subsidies if payment is released," she asserted. Are Election Results & War Set to Act As 'Double-Engine' for Oil Price Surge?Bringing petrol and diesel under the GST regime is a vociferous demand, but it is highly unlikely to be fulfilled anytime soon. According to an estimate, the Centre and the states will lose around Rs 1 lakh crore if fuel is bought under the GST regime.Moreover, states are forced to increase the VAT on fuel prices as their share in central excise duty has reduced to a few paise per liter in recent years.The price you pay to fill your petrol tank comprises of more taxes than the basic price of the fuel. It is the easiest way for both, the Centre and the states to earn revenue. The government levies central excise duty and other cesses on fuel prices, while states levy VAT and other taxes. According to the Petroleum Planning and Analysis Cell (PPAC), the break-up of taxes on fuel prices charged by the Centre is as follows:Petrol: Rs 27.90Petrol Branded: Rs 29.10High Speed Diesel: Rs 21.80High Speed Diesel Branded: Rs. 24.20The tax levied on fuel is different in different states and union territories. According to the PPAC, there is no state tax on petrol and diesel in Lakshadweep, while VAT in the Andaman and Nicobar Islands is levied at the rate of 1 percent per liter.The state governments of Maharashtra, Andhra Pradesh, Telangana, Rajasthan, Madhya Pradesh, Kerala, and Bihar also impose huge taxes on the sale of petrol and diesel. In 2014, when Narendra Modi became the prime minister of the country, the excise duty on petrol was Rs 9.20 per litre and Rs 3.46 on diesel.It had been increased to Rs 32.98 and Rs 31.83 per litre on petrol and diesel respectively before the government reduced the central excise duty in November 2021.Recent data also revealed that in 2022, the central excise duty on petrol and diesel was Rs 27.90 and Rs 21.80 per litre respectively.The central excise duty on fuel prices was increased by 203 percent during the tenure of PM Modi, while the duty on diesel has been increased by around 530 percent.No Oil Proposal From Russia Under Consideration by PSUs: Centre in Rajya SabhaAccording to a report by Business Line, both the Centre and the states have increased taxes on petrol and diesel from 2017 to 2021. But the Centre has enjoyed the largest chunk of the pie.An increase by every one rupee in central excise taxes on fuel results in a windfall of Rs 13-14,000 crore annually for the Centre.In spite of the excise duty cut in November, central taxes remained fixed at Rs 8 and Rs 6 per litre higher on petrol and diesel respectively, compared to the pre-pandemic levels.The government had also informed Lok Sabha that it earned Rs 3.35 lakh crore from excise duty on petrol and diesel in the Financial Year (FY) 2020-21. This marked an all-time-high collection – twice as much as FY 2019-20.The government also earned Rs 3.10 lakh crore from April-December last year after charging taxes on crude oil and other petroleum products. This included Rs 2.63 lakh crore as excise duty and Rs 11,661 crore as cess on crude oil. States during the same period earned Rs 2.07 lakh crore through VAT and other taxes, such as royalties. During the FY 2020-21, the government earned Rs 4.19 crore – Rs 3.73 lakh crore as excise duty, and Rs 10,676 crore as cess, while states earned Rs 2.17 lakh crore, which included Rs 2.03 lakh crore as VAT.According to PPAC, a consumer in Delhi pays Rs 45.3 as taxes on the purchase of petrol worth Rs 100. The Centre gets Rs 29 out of this, while states get Rs 16.3.In Maharashtra, a consumer pays Rs 52.5, Rs 52.4 in Andhra Pradesh, Rs 51.6 in Telangana, Rs 50.8 in Rajasthan, Rs 50.6 in Madhya Pradesh, Rs 50.2 in Kerala, and Rs 50 in Bihar. Essentially, half of the money you pay to buy petrol consists of taxes levied by the Centre and the states.Oil Prices Spike as Easing COVID Restrictions Lead to Worldwide Surge In DemandHere's a breakup of taxes levied on fuel by some states in India. Andhra PradeshVAT - 31 percentAdditional VAT - Rs 4 per litreRoad Development cess and VAT on it – Rs 1 per litreMadhya PradeshVAT – 20 percentAdditional VAT – Rs 2.5 per litreCess – 1 percentDelhiVAT – 19.4 percentIn January 2016, there was a slump in the price of crude oil to $35 per barrel. This marked the lowest price for crude in 11 years.As the government announced that the market price of fuel will be decided by market forces, it was expected that the price of petrol and diesel would fall. But the government hiked the excise duty. Hence, while the price of fuel in the market remained stable, the government gained through an increase in taxes.Here's a comparison of oil prices globally and in India in 2014 and 2022.Oil Prices in 2014Global Crude Oil - $106 per barrel (May 2014 average)Tax on petrol – Rs 9.48 per litre (India)Tax on diesel – Rs 3.56 per litre (India)Oil Prices in April 2022Global Crude Oil - $109 per barrel (May 2014 average)Tax on Petrol – Rs 27.90 per litre (India)Tax on diesel – Rs 21.80 per litre (India)Comparing the current government's policies on oil with that of the United Progressive Alliance (UPA), Rajasthan CM Ashok Gehlot had said, "During the United Progressive Alliance (UPA) tenure, when crude oil prices had touched $100 per barrel, we had never allowed petrol prices to rise above Rs 70 per litre and Rs 50 per litre for diesel in view of public interest.""Though the union government reduced excise duty on petrol by Rs 5 per litre and on diesel by Rs 10 per litre in November 2021, in May 2020 during the COVID-19 lockdown, the excise duty on petrol was increased by Rs 10 per litre and on diesel by Rs 13 per litre. Essentially, the rise in taxes was more than what was given as relief later on," he added.'Major Russian Oil Buyers In Europe': Jaishankar Defends 'Deals' With Moscow

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Who Is Responsible for Fuel Prices Crossing Rs 100/L Mark – Centre or States?

Fuel prices were increased 14 times in 16 days after Assembly election results were declared earlier this year.

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Topics: oil prices Excise Duty Value Added Tax