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June 9, 2020

Know how you pay 250% of Taxes on every litre of Petrol and Diesel consumed

by facelesscompliance in Compliance Law

Know how you pay 250% of Taxes on every litre of petrol & diesel consumed

From June 2017, the fuel prices in India are being revised every day. This is called the dynamic fuel price method which makes sure that even a minute’s variation in global oil prices can be transmitted to fuel users and dealers.

Given below are the petrol and diesel prices per litre for the 4 metro cities as on June 9, 2020.

CityPetrolDiesel
Chennai77.0869.74
Delhi73.0071.17
Kolkata74.9867.23
Mumbai80.0169.92

Drop in Crude Prices

The WTI (West Texas Intermediate or NYMEX) crude oil prices fell from $ 60.94 per barrel in December 2019 to $ 18.84 in April 2020 per barrel. The current price of WTI crude oil as of June 05, 2020 is $39.55 per barrel.

While the benefit of reduction of crude prices should have gone to the consumer, the Government had taken the step of increasing duty to raise some revenue in view of a tight fiscal situation.

The majority of the bulk which is paid towards petrol/diesel goes towards custom duties, excise and VAT. To increase the revenues during the Pandemic and the lockdown, the government had hiked excise duty on petrol and diesel.

Hikes in Taxes in the past couple of months

  • The Government on 5th May, 2020 via Notification No. 6/2020-Central Excise hiked the additional duty of excise on petrol and diesel from Rs 10 per litre (it was Rs 9 per litre before March 2020) to Rs 18 per litre.
  • The Government of 5th May, 2020 via Notification No. 6/2020-Central Excise hiked the Special Additional Excise Duty on:-
 Before NotificationAfter Notification
PetrolRs 10 per litre (It was Rs 8 per litre before March 2020)Rs 12 per litre
DieselRs 4 per litre (It was Rs 2 per litre before March 2020)Rs 9 per litre
  • The Government on 5th May, 2020 via Notification No. 21/2020-Customs hiked the effective rate of Road and Infrastructure Cess (RIC) collected as additional duty of customs on petrol and diesel by Rs. 8 per litre.

The hike in petrol and diesel prices have been significant, particularly while considering that the crude prices are falling and we are trying to survive in an economy where the financial condition of the consumers is unstable.

Components of Pump Price of Petrol and Diesel and calculation of Taxes Paid

Pump price is basically the price at which petrol and diesel is sold to the public.

The pump price includes:-

  • Base Price
  • Freight
  • Price charged to dealers (excluding Excise Duty and VAT)
  • Excise Duty (includes basic excise duty, Special Additional Excise Duty and Additional Excise Duty for road and infrastructure cess)
  • Average dealer commission
  • VAT (including VAT on Dealer Commission)
  • Basic customs duty and additional customs duty

The base price of petrol is approximately at Rs 18 per litre, while the pump price is over Rs 68 (varying according to different cities). The taxes paid on petrol amount to approximately over Rs 50. Thus, an average consumer of petrol now pays over 277% in taxes to centre and states on a litre of the fuel.

The base price of diesel is approximately about Rs 18.50 a litre, while the pump price is approximately over Rs 66 a litre. Therefore a consumer pays cumulative taxes to Centre and states, by over 256%.

Let us understand the same with the help of the table below (The above figures are on approximate basis and may vary for different states as the VAT, freight varies state wise):-

CommodityBase PriceTaxes & other chargesPump Price% of taxes to base price
 (A)(B)(A) + (B)(B) / (A) *100
PetrolRs 18 per litreRs 50 per litreRs 68 per litre277%
DieselRs 18.5 per litreRs 47.5 per litreRs 66 per litre256%

It is understood that the taxes levied on petrol and diesel aid in reducing the deficits of balance of payments in the economy. But these hikes put a massive dent in the common man’s income which is necessary to be maintained in the recent times. It is also necessary that the benefits of the drop of crude oil be passed to the end consumers, which would provide them with some financial relief.

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