The Impact of State VAT on Petrol Prices in India
India has witnessed ongoing discussions and debates on the pricing of petrol, particularly during the early 2000s. One of the most frequently raised questions was why the government under Prime Minister Narendra Modi was not considering reducing the petrol price. However, it is crucial to recognize that the matter is far more complex than it initially appears.
State Taxes vs. Central Government Fees
The question of reducing petrol prices in India is not merely a federal issue. While the Central Government plays a significant role in determining taxes, the price fluctuations are largely influenced by state-level additional charges, primarily VAT (Value-Added Tax).
In 2018, the central government reduced the excise duty on diesel and petrol. This reduction was a significant move towards lowering the final price of these fuels. However, the overall price of petrol remains higher in many states, leading to ongoing complaints and discussions.
VAT Charges Across States
The higher petrol prices in certain states, such as Telangana, Maharashtra, and Madhya Pradesh, can be attributed to the high VAT levied by the state governments. Consequentially, the total price of a liter of petrol in these states is more than that in other regions, resulting in a disparity in fuel costs.
Central vs. State VAT Charges
The Central Government charges a fixed tax of Rs. 19.90 per liter of petrol, which does not vary with the changes in the basic price set by oil companies. However, the state-level VAT can vary significantly, often leading to higher overall fuel costs.
For instance, in Delhi, the price of a liter of petrol is Rs. 97. Out of this, Rs. 57 is the cost charged by the oil companies, Rs. 4 goes to the dealers, Rs. 20 to the Central Government, and Rs. 17 to the State Government of NCT of Delhi. In comparison, in states like Telangana, the price per liter exceeds Rs. 110, which is Rs. 13 more than the price charged by dealers in Delhi. This discrepancy is largely due to higher VAT levied by the state government.
Regional Variations
The price of petrol differs significantly across states, influenced not only by state VAT but also by political and administrative decisions. For example, the cost per liter in states like Maharashtra, Rajasthan, Madhya Pradesh, and West Bengal ranges from Rs. 109 to Rs. 103. The situation is less pronounced in some states, such as Uttar Pradesh, Uttarakhand, Gujarat, and Assam, where the state VAT is lower, leading to a comparatively lower price.
Conclusion
The central government has taken steps to reduce petrol prices through excise duty cuts. However, the actual cost of petrol at the pump is influenced by state-level VAT and other local taxes. The complexity of this issue highlights the need for greater transparency and collaboration between the Central and State Governments to ensure fair and uniform pricing of essential commodities like petrol.
Keywords
- petrol prices
- state VAT
- India