State as shylock - I

This is in part prompted by this post written by confused

In response to the post, I had raised a doubt that whether the quantum of rise in petroleum products is really justified given tax structure and restricted market.

This article (via Indian Express) by Ila Patnaik confirm what I supsected.

In brief there are two points

One The tax/duty on fuel prices is imposed as a percentage of oil price. This means a windfall for both central government as well as state government when the oil price rises.

From the article

" Of the Rs 43.49 per litre that the consumer in Delhi was paying for petrol before the hike, the value of the petrol was Rs 20.42. The Central government levied Rs 14.63 (an excise duty of 8 per cent plus a specific tax of Rs 13 per litre) and Rs 0.30 as education cess. Sales taxes of 20 per cent were levied on the resulting price of Rs 35, which meant that Rs 7.25 went to the Delhi government. When the value of petrol goes up, both the excise collected by the Centre and the sales tax collected by the state go up. "

The author also highlights the remedy

"The Rangarajan Committee on pricing and taxation of petroleum products has also recommended that there is a need to shift from the current mix of specific and ad valorem taxes to a pure specific levy. It recommended that a specific levy of Rs 14.75 per litre for petrol and Rs 5.00 per litre for diesel may be imposed. "


The second point is that oil sector remains protected resulting that there is insufficient competition, thus driving up the oil prices. Trade in oil (whether crude or product) is restriched by barriers explicit as well as implicit.


Therefore while it is nobody's contention that Indian consumers be allowed to have a free lunch, it is only reasonable to expect reform & easing up of restriction in oil industry as well as rationalization of tax structure.

PS Just to clarify, this post is not a rebuttal to the post by confused. Rather it was my attempt to have a better understanding of the issues involved.