The Hindu Business Line : Petrol price hike: Can States soften the blow?

By reducing the Customs duty on crude oil the Centre has shown the way to reduce the burden of the consumer. Some State governments have followed up by reducing the sales tax, but more should do so.

SOME STATE governments have reduced the sales tax, more should do so. — Arunangsu Roy Chowdhury

The announcement of a revision in petrol and diesel prices invariably generates a debate. The latest revision has been no different with the Left parties launching a national campaign and several regional parties extending their support.

The context of the debate and antagonism this time is on whether the actual prices of fuels such as petrol would be in the Rs 20 range, bereft of the duties and taxes, or around Rs 50 that the marketing companies are currently levying from the public. Even a cursory glance is sufficient to ascertain that petrol and diesel prices would not be anywhere near their current highs bereft of Central and State taxes.

The petroleum fuel price is a tale of mandatory levies — of Custom duties, government cess, variable excise duties and sale tax imposts. At the very shores of the subcontinent, all crude imports are levied 5 per cent Customs duty. The mark-up on refined petroleum products is mandated by differential Customs duties levied on petroleum product imports. Then, there is the excise duty levied on basic fuels such as petrol and diesel, not to mention the sales tax ranging from 20-34 per cent. These are over and above the surcharges, purchase tax, octroi and entry charges levied by the State governments.

Boost in tax revenue

It is, therefore, small wonder that fuel prices are at their current highs. But that is only part of the story. The consistent surge in international crude prices and consumption of petroleum products has enhanced tax revenue to the Government — with the gross value of petroleum, oil and lubricant imports growing by almost 50 per cent from $20.5 billion in 2003-04 to $29.8 billion in 2004-05. Despite the surging prices, the higher tax revenue was partly contributed by increasing crude imports, from 90.43 million tonnes in 2003-04 to 95.86 million tonnes in 2004-05.

Is it fair for the government to amass this tax largesse at the cost of the middle-class and poor consumers? Thankfully, the government has reduced the import duty on oil from 10 per cent to 5 per cent in the last Budget. But excise duties continue to remain at their previous levels, bringing more revenue to the government as prices of petrol and diesel continue their relentless upward journey. There is still room to manoeuvre and enable the government to further reduce the price burden on the common man. But the government pleads inability, citing the huge expenditure that it incurs on the National Common Minimum Programme. For its part, the Centre has forsaken some revenues by reducing Customs duty. It will also have to bear the burden of Rs 28,000 crore issued as oil bonds. The Government has also reduced the Customs duty on petrol and diesel from 10 per cent to 7.5 per cent, thus putting a lid on the refining margins enjoyed by the refineries.

Allegations that refineries were raking in profits at the cost of the consumers may no longer be true. The oil marketing companies have been bearing a part of the burden by subsidising the prices of fuels such as kerosene and LPG. But the burden of State government imposts through sales tax, entry tax, octroi, continues to weigh heavily on the consumer.

While the Centre, the refineries, the oil marketing companies and even the common consumer are shouldering a part of the increasing cost of petroleum products, State governments continue to rake in revenues; though some have decided to prune the sales tax burden. State government levies alone constitute Rs 10 or more of the Rs 50-plus that the consumers pay for a litre of petrol.

The Minister for Petroleum, Mr Murli Deora, in a televised interview, said that of the Rs 4 hike enforced on petrol, Re 1 would go to the State governments. The Centre has shown the way to alleviate the plight of the consumers, and it is time the State governments followed suit.

While the Opposition, regional and Left parties are right in championing the cause of the consumer, they should start the tax reduction moves from the States where they are in power.