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Government raises petrol tax Rs6.6 as prices go down

SAMAA | - Posted: May 5, 2020 | Last Updated: 2 months ago
SAMAA |
Posted: May 5, 2020 | Last Updated: 2 months ago

The government has increased the petroleum levy by Rs6.6 per liter as it revised prices on May 1, taking the total petrol tax to Rs23.76 per liter or 58% higher than what you were paying under this head in January.

Following a cut of Rs15 on May 1, the price has come down to Rs81.58, but an increase in the levy means you are paying more in taxes as a percentage of the total price. As a result, total taxes (including sales tax) on a liter of petrol now accounts for 44% of the price. This is nearly double the tax as a percentage of the price you were paying in January.

 

May 1

Jan 1

Price without tax
(company charges)

Rs35.73

Rs74.56

Petroleum Levy

Rs23.76

Rs15

GST (@17%)

Rs11.85

Rs16.94

Total tax (govt charges)

Rs35.61 

Rs31.94

You pay at the pump   

Rs81.58  

Rs116.6

The government cut local prices thrice since March 1, resulting in an overall drop of Rs35 per liter. It was able to do so after international crude oil prices crashed. As more and more countries adopted social distancing and went into lockdown to contain the spread of coronavirus, all kinds of travel came to a grinding halt. This turned into a global demand suppression, which sent oil futures crashing.
For example, American crude (WTI), which was trading above $60 a barrel in January, fell in the negative zone in April. Oil producers were literally selling oil while also giving money to the buyers as they ran out of storage for new stocks or that in transit.

 

Graph by Capital Stake

Unlike other commodities, petrol prices are regulated by the government, which sets prices every month based on international oil prices. The calculations are done by the Oil and Gas Regulatory Authority, which then submits its recommendation to the cabinet for approval at the end of the month. Based on this recommendation, the government increases or decreases the price, or keeps it unchanged. Since the petrol you are buying today was imported weeks in advance (as crude oil), the increase or decrease in price corresponds to whether international oil prices rose or fell. 
The government charges sales tax on petrol at 17%, but it keeps changing the amount of the petroleum levy, which is its main tool to increase tax revenue from oil consumption or pass on any relief to the consumers. While prices were cut sharply, the government increased the petroleum levy. To repeat what was mentioned above: total taxes (including sales tax) on a liter now accounts for 44% of the price. This is nearly double the tax as a percentage of the price you were paying in January.
The government didn’t pass the full benefit of a drop in the international crude oil prices to consumers. This is because it is facing a revenue shortfall for the current fiscal year. It is expected the budget deficit will shoot to 10% of the country’s GDP for the fiscal year ending June 30, 2020.

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