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May 24, 2012 / subramanyam

Petrol Price – VAT and some random musings of mine

          So, UPA 2 has given another petrol hike as its 3rd anniversary gift. This time it’s a whopping  Rs 7.50. Thanks  to the 33% VAT on petrol in Andhra Pradesh  the hike comes to  Rs 9 in the place I live. Then, I use a 2 wheeler to commute to work and spend about Rs 500 on petrol per week, so my bill is going to rise by almost  Rs 200 per month . 😦  

          Well, this  hike in petrol prices is not out of the blue all of a sudden, it  has been on the cards for quite some time, the falling rupee has been warning us about this for weeks now. Let’s see how , Petrol and Gold are the two commodities which this country imports the most. Some say these two are ones to blame for our current account deficit, the impact of petrol in this regard is such that even a $1 change in the price of the crude oil impacts our current account by $900 million.

          Needless to say a free-falling rupee at it’s all time low is making the life of the oil companies hell, (we are paying some 8 rupees more per 1 USD now) and they in turn are pushing the burden in to the common man, which is the reason we are seeing this steep hike in petrol prices.  Well, though it rarely happens, it would be wonderful if they rollback these prices when the rupee picks up / the crude oil prices in the international markets go down. Wishful thinking  isn’t it?

          That was the background of the price hike , now there is one more thing we all need to know. Can you believe that about 42% of the price you pay for your petrol actually goes for the various taxes levied by state and central governments?  Shocking it may seem but it is true and this is how it is … Each state in India levies a VAT tax on petrol. I think AP is the fore-runner in this regard, this state charges a hefty 33%  VAT on petrol Punjab charges around the same, it charges 32.96% and  Karantaka also charges some where around 32, Tamil Nadu charges about 27%. So each time you shell out say RS 75 for a litre of Petrol you pay around Rs 25 as VAT to the state government.

          As VAT is always charged on the base price of the commodity, every time the base price raises the states will earn more revenue every time there is a rise in the petrol prices. For example we have about 6.28 paise hike in the petrol price, with 33% VAT in place AP govt will grow richer by Rs 2.10 for every litre of petrol sold and a common man like you and me will have to shell out Rs 8.50 extra for every litre of petrol we buy. This apart we still pay the central duties which rise the price even further.

         While the current account deficit and the problems of the Oil companies are understandable, why can’t the state governments provide the us much needed relief by reducing VAT when they see a petrol hike, for example it AP brings down the VAT by 3% from 33 to 30% it would keep the state’s revenues intact and still save the common man a couple of rupees.  I do not know why the state governments do not do this . Are they waiting for the common man to come on the roads and protest to do this ?

Image source :

 (Please correct me incase I got my stats about VAT taxes of different states wrong , I am referring to some old stats I read some 6 months ago)

One Comment

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  1. Sirisha Yenigalla / May 24 2012 12:21 pm

    Sometimes it so happens we get used to it crib for a while n then just go on… Protest is not the basic instinct we have, so we are taken full advantage of


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