Santosh Kumar Mohapatra
Fuel prices which have witnessed sporadic rise recently have surpassed the inglorious landmark of Rs 100 per litre in some cities. When the pandemic has been devastating lives and livelihoods, eroding purchasing power of people, dampening demand, the reluctance of the government to reduce oil prices reflects its cruelty towards the masses. The government is blaming it on rising international crude prices which are complete eyewash. The main villain is taxes imposed by both the Centre and states.
It is argued that since oil prices are deregulated, retail prices are increasing in tandem with the surge in international prices and the government cannot regulate it. However, during the election, the government regulates prices, stops raising it not to antagonise voters but after election, it allows the market to determine the prices. Fuel prices are primarily dependent on international crude oil prices, rupee-dollar exchange rate, excise duty levied by the Centre, VAT/Sales Tax by states. Dealer’s commission and freight charges are also added to the fuel price.
The main reason behind oil price hike is the increase in excise taxes from March 2020 to May 2020 when international oil price per barrel had crumbled below $20. For example, in 2014, the excise duty on diesel was Rs 3.56 and that on petrol was Rs 9.40. Now, the Centre’s tax (basic excise, surcharge, agriculture, infrastructure and development cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol. Combined with VAT, which differs from state to state, they bring Indians among the world’s most taxed fuel consumers.
Taxes for fuel are considerably higher in India than in other countries. According to CARE Ratings, as of 6 May 2020, the government was able to collect around 260 per cent of taxes, (Excise Duty and VAT) on the base price of petrol and 256 per cent in the case of diesel. Till 2019, taxes accounted for 50 per cent of the retail price of the two fuels in India. As of 6 May 2020, taxes had comprised over 69 per cent of the retail price of the two fuels, which is the highest in the world. Taxes account for 63 per cent of the retail price of fuels in France and Germany, 64 per cent in Italy, 62 per cent in Britain, 53 per cent in Spain, 47 per cent in Japan, 33 per cent in Canada and just 19 per cent in the US. Central levies account for 71.8 per cent of total taxes on diesel and 60.1 per cent of total taxes on petrol in the national capital now. This shows that the Centre taxes more than states.
As compared to India, petrol is cheaper in neighbouring countries. As of February 2021, the retail price of petrol per litre in Pakistan was Rs 51.14, Sri Lanka Rs 60.26, Bangladesh Rs 76.41, Nepal Rs 68.98, and Bhutan Rs 49.56. Even in the USA it was at Rs 54.65 per litre. The average world price of gasoline is Rs 78.71, which is at least 20 per cent cheaper than India’s average.
In 2014-15, the Centre collected revenues worth Rs 99,068 crore by way of excise duty on petroleum products, while all states together collected Rs 137,157 crore by way of Sales Tax/ VAT. In 2019-20, the Centre collected Rs 2.67 lakh crore, while all states together collected Rs 200,439 crore.
The Centre is expected to collect Rs 3.9 lakh crore in 2020-21 despite the contraction in petrol and diesel consumption. Centre has earned around Rs 1,80,788 crore due to gigantic excise duty hikes in 2020-21. The Central excise duties on petroleum products which accounted for 8 per cent of gross tax revenue in 2014-15, increased to 11 per cent in 2019-20. These account for a fifth of India’s Rs 20 lakh crore gross tax revenue in 2020-21.
It is argued that resources generated from fuels are spent on welfare schemes. But resources generated by any means can be spent on welfare schemes. It is just like taxing the poor to fill the coffers. The countries having much less tax on petroleum products have also a much higher tax-GDP ratio and colossal developmental expenditure. Raising prices of fuel not only leads to inflation, erosion of purchasing power but also has a cascading effect on the economy.
The bitter truth is that the inability of the government to tax the rich, the corporates and its failure to curb tax evasion have reduced its resources generation capacity. So, it is finding it easy and convenient to raise resources by increasing taxes on petroleum products being oblivious of the sufferings of the masses.
It is argued that states get benefits from rising fuel prices due to sharing in a divisible pool. Actually, as part of our federalism, the Centre has to provide resources to states as the latter spend more. It is argued that states should reduce VAT. But states cannot reduce VAT because they have limited scope to raise resources, while the Centre has unlimited avenues to raise resources.
Some argue that fuel prices should come under the purview of GST with a maximum rate of 28 per cent so that fuel price can be reduced. But without including it in GST, both the Centre and states can reduce oil prices by reducing taxes. It may be noted that when GST was implemented states were reluctant to accept it. They agreed on the condition that petrol and diesel be kept away from the purview of GST. So, now the Centre is advocating the inclusion of petrol and diesel under GST just to blame states.
It is not only fuel prices that have escalated, the price of cooking gas/LPG have also doubled in seven years and subsidy has been erased. An LPG refill which cost Rs 410.50/cylinder March 1, 2014, cost Rs 819 in March 2021. The fuel subsidy given in the Budget has been reduced drastically too. It has been slashed to Rs 14,073 crore in the current fiscal from last year’s budgeted Rs 40,915 crore.
In 2020-21, the combined net profit of listed companies was up 57.6 per cent to Rs 5.31 lakh crore. As a result, the corporate profit share in India’s GDP hit a 10-year high of 2.63 per cent in last fiscal. The number of billionaires and their wealth is increasing every year. It is high time to reduce taxes on petroleum products and impose wealth taxes on the rich, corporates.
The writer is an Odisha-based economist and columnist.