Home / News / India /  Taxes on petrol, diesel make you pay four times more. Here's how

NEW DELHI: Even as global crude oil prices have been hovering at multi-year lows, retail prices in India are unlikely to follow the same trend. In fact, the Centre, to shore up revenue, late on Tuesday raised excise duty by a record 10 per litre on petrol and 13 per litre on diesel, making the fuels more expensive for consumers.

Let's look at how taxes make the fuels more expensive.

Taxes levied on fuel, such as excise duty, VAT, dealer commission, make retail prices nearly four times higher.

To put it in perspective, in Delhi dealers pay 18.28/ litre for petrol which includes the base price and freight. After levying VAT, excise and dealer commission, the retail price shoots up to 71.26/litre - the rate in the national capital as on 6 May.

Similarly, for diesel, dealers pay 18.78 a litre, while retail prices are higher at 69.39 a litre as of today.

Excise duty - On petrol, the duty levied is 32.98 a litre, while on diesel it is 31.83 per litre.

VAT - Varies from state to state. Madhya Pradesh, Kerala, Rajasthan, Karnataka levy over 30% VAT - the highest among states.

Dealer commission - Is different for petrol and diesel and varies a little with the location of fuel pumps, ranging from 2-4/litre. In Delhi, the dealer commission is 3.57 a litre, while on diesel it is 2.51.

Price Mechanism

In 2017, after much discussion and despite resistance, the Centre introduced the dynamic fuel pricing, under which prices were to be revised daily.

Unlike administered pricing mechanism, the dynamic pricing ensures that even the smallest change in international oil prices is passed on to consumers via oil marketing companies (OMCs). Price decontrol, non-interference of government in the pricing of the commodity, was the idea behind the move. It allowed oil marketing companies to make “small corrections" in fuel prices.

Since India imports most of its petroleum products, even a small change in global crude oil prices have a significant impact.

The rupee-dollar exchange rate and change in price of crude oil in the international market directly influences the price of crude oil in the domestic market.

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