FUEL PRICES AND WHAT THE OPPN WON'T TELL YOU:
Let's start from basics
1. Crude Oil Price: $ 70.67/barrel(≈ 159 l)
2. That's ₹32.39/litre of crude oil
3. Cost of refinery processing = ₹3.6/litre
It therefore goes to petrol pump @ ₹ 35.99/litre
This is the important bit👇
Let's start from basics
1. Crude Oil Price: $ 70.67/barrel(≈ 159 l)
2. That's ₹32.39/litre of crude oil
3. Cost of refinery processing = ₹3.6/litre
It therefore goes to petrol pump @ ₹ 35.99/litre
This is the important bit👇
4. Central Taxes: ₹32.9/l
5. Commission to petrol pump dealers: ₹ 3.79/l
Total (before state VAT): ₹72.68/litre
State VAT (E.g. Delhi: 30%): ₹21.81
And THAT, is how you pay a total of ₹94.49 per litre of petrol.
5. Commission to petrol pump dealers: ₹ 3.79/l
Total (before state VAT): ₹72.68/litre
State VAT (E.g. Delhi: 30%): ₹21.81
And THAT, is how you pay a total of ₹94.49 per litre of petrol.
The Centre charges a FLAT RATE of ₹32.9/l independent of what the global crude prices are. This is not without reason.
Fuel taxes form around 25% of all taxes of the Government, and you don't want some contrived kerfuffle in the Middle East eating into that.
Fuel taxes form around 25% of all taxes of the Government, and you don't want some contrived kerfuffle in the Middle East eating into that.
Why then, are states allowed to charge a VAT%?
By that same logic, the said kerfuffle is exactly what's impacting the end user prices.
It's $70.67/barrel now but for every $1 increase, there's a concurrent ₹0.60 increase in petrol prices.
By that same logic, the said kerfuffle is exactly what's impacting the end user prices.
It's $70.67/barrel now but for every $1 increase, there's a concurrent ₹0.60 increase in petrol prices.
All the parameters in the breakup are constant and fixed, except State VAT.
Meaning, the extra ₹0.60 you pay per litre for $1/barrel crude oil price increase goes to the STATES.
Has a Kejriwal or a Mamata ever declared they were going to reduce state VAT when fuel prices rise?
Meaning, the extra ₹0.60 you pay per litre for $1/barrel crude oil price increase goes to the STATES.
Has a Kejriwal or a Mamata ever declared they were going to reduce state VAT when fuel prices rise?
All it takes is a 0.5% reduction in state VAT to offset anything the "anti people" Central Government does.
Far from it, the Delhi Govt INCREASED VAT in May 2020 (during the national Lockdown when life came to standstill), as it would give them ₹300 cr of additional revenue!
Far from it, the Delhi Govt INCREASED VAT in May 2020 (during the national Lockdown when life came to standstill), as it would give them ₹300 cr of additional revenue!
For a ₹2 increase, Delhi earns ₹1.2cr extra per day, Tamil Nadu ₹9.4cr, West Bengal ₹2.4cr, and Maharashtra. ₹7.1 cr.
Would any of them bother reducing state VAT? Not a hope in hell.
Would any of them bother reducing state VAT? Not a hope in hell.
Now let's come to the other favourite wolf-whistle of the Opposition: GST on petrol prices.
As above, the consumer pays ₹55 in taxes, split roughly 2/3 between the Centre and the State.
Under a GST regime, the states (who all charge 25-35% VAT) would be cut down to 18%.
As above, the consumer pays ₹55 in taxes, split roughly 2/3 between the Centre and the State.
Under a GST regime, the states (who all charge 25-35% VAT) would be cut down to 18%.
The Centre would also have to charge only 18% on refinery cost, which is only ≈₹9. Clearly untenable to suddenly give up 15% of their total revenues in one shot!
Predictably you'll find hit-job articles on how they'll fund this or that.
Predictably you'll find hit-job articles on how they'll fund this or that.
One can easily envision a Stalin or a Mamata screaming insult to federalism if that were done! It's a non starter.
Also, the Centre cannot play with 25% of their revenues, so whatever the system may be, they will have to keep making around ₹30/l by way of taxes.
Also, the Centre cannot play with 25% of their revenues, so whatever the system may be, they will have to keep making around ₹30/l by way of taxes.
As confirmed by Nirmala Sitharaman, the GST structure for fuel taxes is already in place, marked at 0% as it isn't live yet. The simple way out is to now use the GST Council to firm up the GST structure on fuel for the same ₹55 divvied up ⅔-⅓ instead of 50-50 per GST rules.
That way the Centre gets to charge the same ≈₹33, the state ≈₹22 and revenue flow is more or less same, at the same time within one national framework.
This can be subject to monthly reviews at the usual GST Council meetings.
This can be subject to monthly reviews at the usual GST Council meetings.
And the way the voting at the council goes, every state out of 30 has 1 vote, and the Centre has 15 votes (⅔-⅓ share of voting rights). Since the law requires a 75% majority of votes, that means 19 state govts will have to be on board. Verily doable for the NDA.
That way, if elections are coming up in Punjab and UP, try as they might, the Opposition will find it hard to ram through petrol price hikes at the last minute to stymie their chances. Where will they get 17 other states from to agree to this?
As it is, the rules demand only 75% majority of weighted votes. After 37 consecutive unanimous calls, there was voting for the first time recently on the issue of GST on lotteries. The Centre might as well get on with it and put to the council the proposal on #FuelPrice under GST
If Kejriwal, Mamata and Vijayan can hike State VAT and then turn around and blame the Centre, Modi might as well take control of the structure and the narrative. The numbers and the Council rules show it's verily doable.
All that's needed is clear communication to the common man
All that's needed is clear communication to the common man
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