Fuel tax rates result in two-wheeler owners paying more per litre than airlines

There are also fiscal reasons behind the government's persistent hikes in excise duty on petrol and diesel.

Higher state taxes coupled with greater incidence of central excise duties has resulted in petrol becoming more expensive per litre than aviation turbine fuel (ATF), the cost of which is borne only by those who can afford to fly.

In Delhi, for example, the latest petrol price is Rs.59.95 per litre, according to state-run oil marketing company Indian Oil Corporation (IOC). ATF in the national capital costs a significantly lower Rs. 35.13 per litre for domestic flights. That is a difference of Rs. 24.82 per litre. The difference between the price of petrol and ATF in Mumbai, Kolkata and Chennai is Rs. 31.80,Rs. 23.40 and Rs. 21.80 per litre, respectively.

All fuels are subject to several taxes, both at the central and state levels, resulting in their final market price being significantly higher than the price dealers pay for the fuel.

“There is a demand from the airline industry that ATF duties be reduced. Their argument is ATF tax rates are much higher in India than in other countries. But with the prices going down due to the fall in oil prices and airline companies recording large profits, there is an argument for ATF duties to go up,” K. Ravichandran, Senior Vice President and Co-Head, Corporate Sector Rating at ICRA told The Hindu.

One major reason for the mismatch between the prices of ATF, a highly refined fuel and petrol is the higher burden of central excise duties on the latter, Mr. Ravichandran said.

Data from IOC showed that while dealers in Delhi pay Rs. 24.50 per litre of petrol, the addition of central excise duties, state value-added taxes (VAT) and dealer commissions takes the final market price to Rs. 59.95. The tax component in the price of petrol in Delhi (and most other cities) is higher than the price of the petrol itself.

Of course, there are fiscal reasons behind the government's persistent hikes in excise duty on petrol and diesel.

“From the exchequer's perspective, there is a need to deal with fiscal deficit. The current situation is conducive for giving priority to the national interest,” Deepak Mahurkar, Leader, Oil and Gas Industry Practice, PwC, told The Hindu.

While oil prices in India fell from $50.2 per barrel at the start of February 2015 to $30.3 currently, the government absorbed most of this benefit by hiking excise duties on petrol five times in that period from Rs. 6.95 per litre to Rs. 9.48 per litre currently.

State-level tax rates differ but the trend is one of higher rates for petrol compared to ATF. For example, petrol in Delhi and Chennai attracts a total VAT rate of 27 per cent. In Mumbai, this rate is 26 per cent with an additional Rs.3 charged per litre. The VAT on petrol in Kolkata and Goa is at a relatively lower 15 per cent.

The central excise duty, inclusive of additional and special excise duties, works out to Rs. 20.48 per litre of petrol.

State taxes on ATF vary sharply but in general they are lower than those on petrol. In Delhi and Mumbai, for example, the fuel attracts a VAT of 25 per cent.In Chennai, the rate is 29 per cent, in Odisha 20 per cent, and Goa 12.5 per cent. The central excise duty on ATF is at an ad valorem rate of eight per cent as opposed to a fixed amount for petrol. This greatly benefits airlines when oil prices fall, as is currently happening, since the quantum of tax payable by them will also fall proportionately. The excise duty on petrol remains fixed regardless of the price of oil.

“In the case of petrol, 99.6 per cent is consumed in the transport sector. Of this majority consumption of 61.42 per cent is accounted for by two-wheelers while cars use 34.33 per cent followed by three-wheelers at 2.34 per cent,” a pan-India study conducted by Nielsen India for the Petroleum Planning and Analysis Cell of the Petroleum Ministry found in 2014.

Another reason for ATF enjoying lower excise duties than petrol or diesel, apart from lobbying by airlines, is that aviation fuel can be freely imported. Hence, if the Indian government hikes the excise duty on ATF, airlines can simply import it from cheaper sources. Consumers of diesel or petrol don't have any such option.

(The headline has been edited for a factual error.)

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Printable version | Feb 17, 2020 3:59:39 PM |

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