Lower global rates of crude oil not likely to reduce fuel prices in India – Know why

Lower global rates of crude oil not likely to reduce fuel prices in India – Know why

New Delhi: Despite fall in the price of crude oil in the international market, the prices of fuel increase in India and now it is at a three-year high. This leaves many in the nation to wonder.

Commenting on this, Government of India said that State Govt. should cut the prices of fuel as they earn more due to the taxes on petrol and diesel.

The ruling BJP also tweeted a picture to explain where the money spent on petrol and diesel goes. According to the tweet, Delhi Govt. earns double of what Central Govt. earns.

However, this information is not true as State Govt. do not receive 42% of the total Central Excise Duty rather 42% of the Basic Excise Duty. In case of Delhi where the price of petrol is Rs. 70.48, Rs. 21.48 goes to the Center as Excise Duty. Out of this, State Govt. receives only 42% of the Basic Excise Duty (Rs 3.56).

Therefore, State Govt. receives VAT and 42% of Basic Excise Duty. In case of Delhi, VAT is Rs. 14.96 and 42% of Basic Excise Duty is Rs 3.56 which adds to Rs. 18.52 per liter. On the other hand, Center earns, Rs. 6 as an additional duty, Rs. 7 as special additional duty and 58% of Basic Excise Duty (Rs. 4.92) which adds to Rs. 17.92.

It may be mentioned that excise duty on petro products account for 50-55% of the total excise duty collection by the Center.

Center Government cannot cut taxes on oil as it will create trade imbalance. State Govt. also cannot reduce taxes as most states dependent on it. Center Govt. might reduce the tax on petrol if there is an increase in collections of Indirect Tax or International prices soften.

It may be noted that due to the decrease in output from OPEC, demand for oil increases leading to a reduction in chances that the prices of crude oil will soften in the international market.