GoI needs to take the lead in paring taxes on petrol and diesel

GoI needs to take the lead in paring taxes on petrol and diesel

The international crude market is in for a spell of volatility following a disagreement between members of the OPEC+ cartel on restoring voluntary production cuts that were agreed upon last year after the outbreak of the Covid-19 pandemic. It comes in the backdrop of a phase when the retail price of petrol in some parts of India has exceeded Rs 100 per litre.

A look at the international crude price trend puts the price build up in India in proper perspective. In April 2020, the monthly average price of the India basket of crude was around $20 a barrel. Governments, in particular the GoI, used the fall in crude price to ramp up taxes. The logic was that lockdowns reduced tax collections elsewhere and the fall in raw crude price offered an opportunity to make good the fall in tax collections in other areas.

Today, the price of the Indian barrel is around $75. There’s no relief however on the tax front. In Delhi, the price of a litre of petrol on 1 July was Rs 39.32 when the dealers picked it up. On this base price, GoI levied taxes that amount to 84%, which is followed by state levies, taking the retail price to almost Rs 100 a litre.

GoI has also restructured its share of taxes as cess and surcharge to cut down the amount it has to share with states. Given the current state of the economy, it’s GoI which has to take the lead in lowering fuel taxes as it has cornered the lion’s share of the revenue windfall from petrol and diesel taxes.

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