When you buy petrol at Rs 81/litre, Rs 24 goes to states’ kitty and Centre gets Rs 15
If ex-refinery taxes themselves are about half the retail price of every litre of petrol sold in the country, the larger share of these go to the state governments. To illustrate, when a consumer in Delhi paid Rs 80.87 for a litre of petrol on Tuesday, she enriched the coffers of state governments, including Delhi’s own, by Rs 24. She, however, added just Rs 15 to the Centre’s kitty, which takes most of the political heat over the rising prices of fuels.
In the case of diesel too, the states take the larger tax pie — Rs 15.50 per litre against a little over Rs 12 for the Centre. What makes it incumbent on states to give consumers some relief more than the Centre is that their kitty swells with increasing prices of fuels while the Centre’s doesn’t. As reported by FE earlier, while oil companies now sell petrol to dealers at prices 12% higher than five months ago, major state governments’ gains in the form of extra tax mop-ups are over Rs 1 crore per day; Rs 5.5 crore in the case of Maharashtra, for instance.
While the Centre collects Rs 19.48 a litre from assorted excise duties on petrol, what it really gets is only Rs 14.66 owing to the Finance Commission-mandated transfers to the state governments. In comparison, the state governments collectively get Rs 23.89 for every litre of this fuel sold — their own sales tax/VAT mop-up (weighted average rate of around 30% on the base price which includes cost to dealers plus excise and dealer margins) plus 42% of the non-cess excise collected by the Centre.
In fact, the Centre’s share of fuel taxes was even lower until a road-and-infrastructure cess (Rs 8 per litre) on petrol and diesel replaced certain excise levies on fuels in the last Budget. While taxes have to be devolved to states as per the commission formula, cess proceeds go exclusively to the Centre’s kitty.
Of course, the NDA government hiked the excise on fuels nine times between November 2014 and January 2016 (it decreased these levies once late last year) and collected an average of Rs 1.87 lakh crore a year from these taxes, 2.5 times what the UPA-2 government did. But it dutifully implemented the phased decontrol of diesel initiated by the UPA-2, in what helped reduce the oil companies’ under-recoveries to an average of Rs 38,700 crore per year from Rs 1.14 lakh crore per year during the UPA-2’s tenure. So, if this subsidy reduction by the NDA government too is factored in, the excise taxes levied by it on the fuels is just a fifth higher than in the previous regime.
Also, the NDA did away with subsidy burden on upstream oil firms that was around Rs 48,480 crore a year under UPA-2’s watch.
The UPA-1 government had issued oil bonds worth Rs 1.44 lakh crore to reduce the budget outlay for oil subsidies and contain the runaway fiscal deficit. UPA-2 expended Rs 53,048 crore to service this debt and a similar amount will be spent by the NDA by FY19.