Slate. All you wanted to know about One Nation One Rate

As vegetable prices steam up again, the cut in petrol prices by ₹2.25 per litre in the past week comes as a bit of a breather. But how would you like it if you also had lower taxes and a uniform rate for petrol and diesel across the country? Sounds cool? Well, as the Parliament ponders GST, the All India Petroleum Dealers Association has come up with a demand to streamline petrol and diesel prices across India. They’ve dubbed it “One Nation One Rate”.

Retail prices of petrol and diesel differ from State to State and even vary between city limits and the suburbs. So where does this price differential come from? Well, to understand this, we need to know how fuel prices at the pump are arrived at. To calculate fuel prices, the basic cost of petrol/diesel imported into the country, including freight, is considered in dollar terms. This is converted into rupees using an average exchange rate. A variety of State-level taxes get added to this - cess, state value added tax (VAT) and State Specific Charges that allow firms to recover entry tax and octroi, before arriving at the final retail price at the pump. Differential tax rates, especially VAT from State to State are the major cause for differences in fuel prices across the country.

According to data from the Ministry of Petroleum and Natural Gas, the effective rate of state taxes levied on petrol in Delhi is 27 per cent where as in Mumbai it is 35.08 per cent. This makes the petrol dearer by almost a ₹5 in Mumbai (₹67.11 per litre, Indian Oil Corporation) compared to Delhi (₹62.51 per litre). The same logic applies for diesel as well. With state-level taxes at 31.56 per cent, diesel is sold at ₹68.44 per litre in Bhopal, which is higher than ₹62.95 per litre in Chandigarh where the effective tax rate is 17.27 per cent.

To put an end to the disparity, over 50,000 fuel pump owners across the country have gotten together and demanded that petroleum products, which have been specifically left out of the GST regime, be swept under it, so that fuel rates can be made uniform. But convincing individual States which currently rake in substantial taxes through VAT to lower their rates may prove an uphill task.

Uniform prices may make fuel pricing more transparent and easy to understand for consumers. Plus, it may curb grey market activity. With VAT differentials widening, there has been an increase in grey market fuel movements across State borders.

Reports say that grey market racketeers buy fuel in the ‘cheaper’ states and sell them in States where they are priced higher. Uniform pricing across the nation can avoid this illegal trade. Also the petrol pump owners association claims that a uniform tax rate will result in an increase in revenues for the government.

At present, price differentials in petrol and diesel prompt some price-conscious people to hop from pump to pump looking for the best deals, even if the differences is just a few paise within the city. On long road trips, drivers avoid refuelling close to the borders of an ‘expensive’ state and try to push it until they get to the neighbouring ‘cheap’ one. If One Nation One Rate becomes a reality, one can make long distance trips without such machinations.

One Nation One Rate is fuel for thought. But given the way States are resisting even plain vanilla GST, it may not become a reality anytime soon.

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