Plug tax hole on fuel


Fuel prices in India are among the highest in the world. Among developing countries, Indians pay more for their daily quota of fuel than their counterparts in these countries. Government taxes constitute a large component of the headline price of fuel in the country. In India, we currently pay a jaw-dropping 60 per cent tax on fuel. At present, the price of petrol is nearly Rs70 per litre, which is completely unjustified for a commodity whose price is less than Rs30 per litre after considering transportation and the dealer commission.

The import cost of fuel is the sum of international price of crude oil ($52 per barrel now) plus the ocean freight of two dollars per barrel. Fifty-four dollars per barrel works out to about Rs3,672 (taking a Rs68 exchange price per dollar).

Considering that a barrel of crude is equivalent to about 159 litres, the procuring cost of fuel in India comes to about Rs23 per litre. Refining fuel, transportation from refineries to oil marketing companies’ depots and then to dealer points add up to Rs3.50 per litre. The dealer commission is between 1 and 2 per cent per litre.

All these add up to a basic cost of Rs28.50 per litre for petrol in India. The tax component (entry tax, if any, excise duty, VAT, pollution cess and surcharge) add up to nearly Rs42 per litre of petrol. It is a tad lower in case of diesel. However, if we factor in the tampering at dealer points as was proved last week in Uttar Pradesh and at two petrol pumps in Bhubaneswar, plus massive adulteration, the per litre cost of fuel will be much higher.

A back of the envelope calculation will tell us that an Indian owning a two-wheeler pays around Rs100 daily (supposing s/he buys at least two litres of petrol daily) towards tax on fuel alone, whereas a four-wheeler owner pays around Rs250 (supposing s/he buys five litres of petrol daily) as tax on fuel.

We Indians are heavily taxed. But where is all this money going. The government of India should, first of all, justify to us customers and citizens why it is charging us such completely unjustified amount of tax after we have paid so many other taxes such as income tax, service tax, VAT, education cess, property tax, Krishi Kalyan tax, and Swachh Bharat tax.

People nowhere in the world pay so much towards tax for one litre of fuel as we do in India. If the government insists that the urban middle class is its only source of making money, it has not figured out how to bring the rest of the population under the tax net.

The government has not figured out how it can ensure that no one is taking money away from the country without paying taxes here. The government has still not figured out who holds the Swiss bank accounts and how that money can be brought back.

If the government still wants to pick on the middle class to foot its entire tax bill, it must have completely run out of ideas. But in that case, the government owes us a complete account of where this money is going.

The budget document that it produces in-house once a year is not good enough. It only talks about where the money has come from and for what it has been allocated to. This does not talk about how many roads it has actually built, how many children it has actually fed and how many more beds it has created.

All these figures are not in the budget document. The government must bring in transparency on the fuel tax structure. As the government collects a terrifying 60 per cent tax on petrol, it owes us a guarantee to guard us against irregularities at multiple points in the fuel delivery system.

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  1. Joydeep
    May 21, 2017 11:04 pm

    complete valid points mentioned . Govt is absolutely looting . specially Modi