NEW DELHI: The center may face a “Dharm Sankat (Dilemma)” over record fuel prices. However, four states have taken the lead with tax cuts to provide relief to consumers and to show the center that rising pump prices have less to do with rising crude oil and more to do with high taxes.
On Sunday, West Bengal joined the band as the last member and cut the sales tax on gasoline and diesel by Re 1. Rajasthan was the first to move on January 29th, cutting sales tax from 38% to 36%. Assam, who is also voting, followed suit on February 12 by withdrawing the rupee 5 additional tax levied last year to fund the fight against the Covid-19 pandemic.
Meghalaya has given the biggest relief of Rs 7.40 for gasoline and Rs 7.10 for diesel, initially with a discount of Rs 2, followed by a VAT cut on gasoline from 31.62% to 20% and from 22.95% to 12% for diesel.
So far, however, the center has refused to cut excise tax, which it had cumulatively increased by 13 rupees per liter of gasoline and 16 rupees of diesel between March and May 2020 when India’s crude oil purchase cost fell to $ 19.9 a barrel as the pandemic brought the economies to a standstill. Instead, India’s reliance on oil imports and producers who control production has been blamed for rising fuel prices.
Oil Minister Dharmendra Pradhan pointed his fingers at OPEC-Plus and said the group had “pulled back” to “understand” that production would increase from January. On Saturday, Finance Minister Nirmala Sitharaman said the situation was a “Dharm Sankat (dilemma)” for the government.
How much does crude oil affect pump prices? Note: Gasoline was sold for Rs 89.21 per liter and diesel for Rs 79.70 per liter in Delhi – the reference market – on Sunday when India bought crude oil for around US $ 63 / barrel. On the same day a year ago, gasoline was Rs 71.89 and diesel Rs 64.65 when crude oil averaged $ 54.63 / barrel per month.
This means that pump prices have increased by 24%, although the prices charged to traders have changed slightly and crude oil has only increased by 15% in one year. The fly in the ointment is taxable. The central consumption tax on gasoline increased by 64% from 19.98 to 32.90 rupees and by 74% from 18.83 to 32.90 rupees for diesel. Similarly, the VAT on gasoline has increased from 15.25 to 20.61 rupees for gasoline and from 9.48 to 11.80 rupees for diesel. While the excise tax remains the same, pump prices vary in different states due to different VAT.
The centre’s current refusal to give tax breaks is different from October 2018 when excise tax was cut by 1.50 rupees and state fuel retailers were asked to provide another discount after gasoline prices hit 80 rupees per liter and the Diesel prices reached 77 rupees in India. The cost of crude oil rose to USD 80 per barrel. 18 states had also lowered sales tax and lowered prices by around 5 rupees per liter.