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Column: Taxing petrol efficiently

Feb 21 2014, 00:23 IST
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SummaryAll central and state taxes on petrol need to be put in one basket

The price of petrol is subject to factors such as refinery gate prices, the freight for carrying petrol to refineries and the commission paid to petrol pumps. Then, there are umpteen taxes levied by the central and state governments to raise resources. Thus, about half of the petrol price paid by the users goes into the coffers of the government as tax levies.

Unintegrated policy

Taxes on petrol and its users are levied by both the Centre and state governments, independently. There is no comprehensive national policy for the taxation of petrol or its road use. The Centre levies excise duty on petrol and vehicles. The levy on petrol has been restructured from being a mix of ‘specific and ad valorem’ taxes into a pure specific levy. The tax component of petrol price does not increase with every increase in its retail price. State governments also levy taxes on crude oil and vehicles. Octroi and entry tax on crude oil are taxes on inputs or intermediate products. This tax burden is irrecoverable and varies from state to state and from refinery to refinery. The effective protection provided has an impact on the margins of some refineries. Taxes on petrol and on its users (via tax on vehicles) are unintegrated. In view of the dire need to arrest environmental degradation, it is essential to integrate environmental issues within the framework of the policy for taxation of petrol and its users.

Multiplicity of taxes

In addition to the levy of Union excise duty on petrol by the Centre and sales tax by states, other road user taxes are also levied by states. These include sales tax on vehicles, motor vehicles tax, and passengers and goods tax. These taxes fulfil the regulatory objective of the vehicle transport policy and are levied for mobilising resources. The fact that road user taxes play an important role in achieving a desired level of growth in the number of vehicles, and investment in roads, these taxes need to take environmental considerations.

Taxes on motor vehicles are levied at three points—at the time of purchase; on ownership of the vehicle, i.e. when the vehicle is registered in the state; and on the use of vehicles (taxes on fuel, tolls, permit fee, goods tax etc).

Tax on purchase of vehicles

Taxes related to the purchase of vehicles, viz CenVAT, stateVAT, CST, have a strong influence on the choice of the vehicle. These taxes also have an

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