High fuel prices: blame it on high central excise which has increased manifold since 2014

F uel prices in India have skyrocketed this month, recording a historic high. After assuming office in 2014, NDA Government which has steadily hiked central excise duty to levels which are five times or even higher than in 2014, has persistently refused to reduce it to provide some relief to people.

Neither the pandemic nor the lockdown and the slump in the economy or growing joblessness have persuaded the government to do otherwise.

When in the opposition,BJP used to oppose tooth and nail even small hikes in excise duty in petrol and diesel, totally overlooking the fact that under recoveries of oil companies had spiraled out of control and touched a whopping Rs. 1.61 lakh Crores in 2012-13. Prices were then high also because international prices of crude oil were at a record high. Prices were high despite the subsidies given by the UPA Government to diesel, kerosene and LPG, which provided a cushion to domestic consumers.

The BJP Government at the Centre, on the other hand, has been busy lowering or withdrawing subsidies. And despite oil prices in international markets having remained consistently low for the last six years, Indian consumers have continued to pay a high price.

We should not forget the fact that the international crude oil prices fluctuated above $110/barrel between 2011-2013 and threatened fiscal discipline and deficit of the central government with the oil import bills upsetting estimates.

Central Government deregulated the prices of petrol on 25.06.2010 and diesel on 19.10.2014, as the subsidies spiraled up due to the high international crude oil price, which resulted in large holes in central finances. But over the years, the fuel have become one of the biggest tax revenue contributors to the Union Government. The excise duty collection by Government directly comes from a handful of refineries, therefore it is swift and efficient unlike other taxes. As per the data by PPAC, the crude oil price per barrel, which cost $107.14/barrel (₹6655.54/barrel) in March 2014 fell to $41.53/barrel (Rs.3050.38/barrel) in October, 2020 (latest price available at PPAC website).

Petrol and diesel prices on 15.03.2014 were ₹73.20/litre and ₹55.48/litre respectively which have now soared to a historical high as Petrol and diesel prices touched ₹90.34/litre and ₹80.51/litre respectively in Mumbai on December 16, 2020.

Let us examine Delhi’s fuel prices to understand how taxes are levied on both petrol and diesel. As of December 16, 2020, prices of petrol and diesel in Delhi were ₹83.71 and ₹73.87 respectively. However, the base price including freight of Petrol is still ₹27.74 per litre, which is just 33.1% of the retail selling price (RSP) of ₹83.71. In case of diesel, this is ₹28.66, i.e., 38.8% of the RSP.

From every single litre of petrol sold in Delhi, the central government now collects ₹32.98 as central excise duty, which is 119% of the base price including freight while the state VAT comes to ₹19.32, which is 70% of the base price including freight.

Similarly, in case of diesel, the Central excise duty is ₹31.83, which is 111% of the base price including freight and State VAT is ₹10.85, ie, 37.9% of the base price including freight.

As per the data provided by the Petroleum Planning & Analysis Cell (PPAC) of the Petroleum Ministry, during 2019-20, Central Government collected ₹2.23 lakh Crores from excise duty on fuel. The Union Budget 2020-21 anticipated ₹2.67 lakh Crores as excise duty from the fuel, which comes 16.3% of the total tax revenue of ₹16.539 lakh crores.

The present excise duty on petrol is ₹32.98, which, when UPA-2 left office was just ₹9.48 per litre. In other words, excise duty on petrol is 348% higher now than in 2014. Similarly, the present excise duty on diesel is ₹31.83 which has increased by 894% more than ₹3.56, when UPA-2 remitted office.

The central government not only hiked the excise duty but they have also tweaked its components in such a way that the component which goes to the divisible pool to be shared among states is reduced substantially while the Cess, which goes to the Centre’s kitty, increases. The central government has strict regulatory control and say over how the Cess shall be shared among the states under various Centrally Sponsored Schemes.

When UPA-2 left office, the basic excise duty that went to the divisible pool was ₹6.35 out of a total excise duty of ₹9.48, ie, 67%. But now the basic excise duty has shrunk to ₹2.98 out of the total excise duty of ₹32.98, ie, just 9% of the total excise duty collected by the Centre.

Similarly,the current basic excise duty on diesel going to the divisible pool and collected by the Centre is ₹4.83, ie, 15.2% of the total excise duty of ₹31.83. This is a classic example of the hypocrisy of the principle of co-operative federalism by which the Prime Minister and the BJP Government at the Centre swear.

This BJP Government has hiked and tweaked the excise duty 15 times after assuming office in 2014.

Indian citizens are now conditioned to pay high fuel prices, thanks to exorbitant taxation by the central government, and they limit their outrage in social media and take the burden without any protest.

Some experts believe petroleum products should be brought under the GST as a panacea for the high taxation now imposed on the fuel. But as total taxation on petrol by both Centre and state governments comes to 189% of the base price and freight, how to bring fuel prices under a flat and uniform GST regime is a great conundrum waiting to be solved.