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Another huge hike in petrol – high taxes and then a claim of subsidy




It was somewhat predictable, and yet shocked everybody. The Government had adjourned the budget session of Parliament, there are no state elections coming in for many months, and so it seemed like a time when there will not be too many objections (in terms of a ruckus in Parliament). So, after stating for many months that oil companies were under-recovering, the Government finally bit the bullet and decided to increase the price of petrol by the highest ever. The last time a major increase was announced, it was Rs. 5, and then this time it was decided that this increase was not enough, it would be Rs. 7.50. On top of this huge increase, the Government and the Congress party decided to try and be even more ridiculous and announced that since prices were deregulated, the Government had no role and the decision to increase prices was done by the oil companies (yeah, right ! The oil companies took this decision, when they had been pleading for this decision for so many months, and further, they waited till Parliament shut down and then took this decision ! If any oil company head ever decided to take such a unilateral decision, he would be sacked the same day).
The interesting thing is that this decision was done and announced that the oil companies are bearing a huge subsidy and hence the under recoveries. There are very few comments on the breakup of the overall price of petrol and whether the Government is making a huge profit from this. It all goes down to the economic and fiscal policies of the Government. The Government has to spend so much money for its various programs (some of which leak huge amounts of money that if they were made more efficient, the amount of savings would be like a new source of income); these include the money spent on programs such as the rural jobs schemes, the various loan waivers, the Bharat Nirman programs, and also sums of money that were not availed of such as the money involved in the 2G scam, and who can forget the Tens of thousands of crores spent on the Commonwealth Games.

Now, you might wonder what I am talking about ? Well, consider this; out of the price of a litre of a petrol, almost 45-50% is that of some sort of tax levied by the Government (refer this article):

Petrol is subjected to four levies: Central excise duty, customs duty, entry tax, and sales tax. An employee from an oil marketing firm said: “We can reduce the burden on the customers if both the Central and State governments reduce these levies.
However, governments have their compulsions in spending, and they cannot but charge the levies to meet the expenditure on the spending.”

The taxes are many:
Excise duty, Education Tax, VAT, Crude Oil Custom duty, Petrol Custom.
From Wikipedia: Due to corruption and government’s attitude towards taxation, the Central and state government’s taxes make up nearly half of petrol’s pump price. The Central govt has different taxes, which amount to about 24-26% of the final cost. The states taxes vary, but on average end up making about 20-25% of the final cost. As a result, approximately about 50% of the pump cost goes to govt in form of different taxes.

What does this mean ? It means that when the Government is increasing prices, it also automatically increases the amount of taxes it earns from a litre of petrol; if the Government was seriously interested in reducing the price of petrol and decreasing the suffering of people, it would become more efficient, plus the gaps in the leakage of its programs and hence reduce the level of taxes earned. Is this likely ? Hah ! With the current regime, no chance. Any hopes of being responsible are not possible.




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