Half of what we pay for Petrol is taxes!

Category: Global Economy Sub-category: Indian Economy
Document type: news

18-May-2011 | 17:13 hrs | Edited By: Shradha Diwan; Tanusree Pal

The oil marketing companies recently hiked the price of petrol by Rs. 5 per litre. This has increased the share of taxes to around 47% of the total price.

According to the oil marketing firms, the burden on the customers can be reduced if both the Central and State governments reduce the levies charged by them on petrol.

But since the governments have their compulsions in spending and they cannot, but charge the levies in order to meet the expenditure on the spending.

The primary reason for high taxes is that excise tax and sales tax are the primary sources of revenue for both the Central and the State Government. Generally, 4 types of taxes are imposed on petrol by the government:

Taxes Levied on Petrol

Out of these, the Central Government charges fixed excise tax of Rs 14.35 per litre and customs duty of 7.5% on crude oil. Whereas the State Government charges 25% sales tax on petrol and entry tax of 5% which is levied on every litre of petrol and diesel that enters the state. The State Government follows an ad valorem system instead of VAT for petrol which means a rise in crude prices will automatically increase the tax levied.

Recently, the Union government has shifted from an ad valorem system to a fixed-rate system for excise tax.

For example, the recent hike in petrol prices in Bangalore will increase the price of petrol to Rs 71.09 per litre. Out of this, Rs 17.06 will go to the Central government in the form of excise and customs levies and Rs 16.63 as levies charged by the State government such as sales tax and entry tax. That is Rs 33.69 goes as taxes every time a person buys a litre of petrol. The cost of crude petroleum (including the cost of transportation) comes around Rs 36.18 per litre.

Break-up of Levy per liter of petrol