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Indians pay more because govt treats fuel products as Cash Cow: Varun Gandhi

Wednesday October 24, 2018 3:50 PM, News Network

Why petroleum prices are high in India

New Delhi: Bhartiya Janata Party (BJP) MP Feroze Varun Gandhi blamed the government's oil policy, unjustifiably high levies and double taxation by the states for the prices of petrol, diesel and other petroleum products in India which is on the higher side as compared to other countries.

"Expensive crude oil means costly imports, thereby putting additional downward pressure on the rupee (as witnessed in the rupee's recent slide). However, this oil price increase has also partially been driven by a historical policy of the Indian government to treat oil and gas products as a cash cow", Varun Gandhi wrote in an Op-Ed article published by NDTV Wednesday.

"India has a host of taxes on petrol and diesel - the centre levies an excise duty, while local state governments levy VAT (usually above 20% for most states), retail price breakdown of fuel prices reveals that taxes constitute 43% and 33% of the retail price of petrol and diesel respectively (in Delhi, as of October 15 at IOCL pumps)", Gandhi wrote.

"Such taxes can increase the price of petrol by 90% over the dealer price (including dealer commissions), and that of diesel by 60%. In recent years (2015-2017), excise revenue comprised 23% of total tax revenue (including the share of states) of the centre; of this, excise revenue gained from taxing petrol and diesel was worth ~80-90% (Parikh, S, Singh, P.K, 2017)", he added.

"Over the last few decades, even when crude prices have fallen to historical lows, both the centre and state have provided little, if any, relief, typically asking the oil marketing companies to absorb the burden of increased prices", he wrote.

Varun Gandhi wrote that additional taxes on petroleum products by the states, which he called "double taxation", and increased dealers' commission also played roles in high petreleum prices in India.

"Further examination of these taxes also highlights that the VAT charged by state governments has an element of double-taxation, and as such is calculated on sum of price charged to dealer, dealer commission and excise duty, a tax already collected by the centre", he wrote.

"Changing this double taxation could reduce the petrol prices by Rs. 5/litre instantly, albeit at the cost of hitting state revenues. Given the ad-valorem nature of state VAT taxes, state governments typically collect more revenue than usually budgeted - thus, the state government has headroom to cut VAT rates provided other factors remain the same", he wrote.

"State governments could also consider a fixed tax rate which is in-line with their budgets", he suggested.

"In addition, dealer commissions have risen significantly over the last two decades, rising from Rs. 707/KL in 2004 to Rs. 2,674 + 0.859% of product billable price in August 2017 for petrol (PPAC). Instead of asking refineries to subsidize fuel prices, the government should consider rationalizing the tax regime for petrol and diesel prices", he wrote.

"For now, the government can consider utilizing inventory stocks at state refineries (typically 7-8 days of inventory), along with stocks in pipelines, ships in transit and the strategic petroleum reserve to provide immediate albeit short-term relief to the consumer", Gandhi wrote.

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