NLCHAWLA

 

DEREGULATION  &  COMPUTATION OF  FUEL PRICES 

                All of us are well aware that Petrol Prices in the country were deregulated in 2010 and subsequently decontrol of Diesel Prices was carried out in 2014 so as to end the era of subsidy given to Oil Marketing Companies (OMCs). Therefore, petrol as well as diesel prices became dependent on international market rates of crude oil. In the year 2017, OMCs were permitted to revise fuel rates on daily basis instead of changing them on quarterly basis. It is worth mentioning that the daily price changes for Petrol as well as Diesel are effected at 6.00 am every day.

2.           Apart from purchase price of crude oil from international market, various costs involved in the production of fuels from initial stage to the final stage such as refining and processing of crude oil and freight etc. are added up to work out the Fuel Price after Processing. Thereafter, to determine final price to be borne by the end users/customers, excise and custom duties levied by Central Government and VAT by respective State Govt. are  loaded to it. These taxes so levied  contribute substantially for respective Government’s exchequer. Further, it is clear from the undernoted table that these taxes account for a major chunk of the cost of petrol for the retail customers.

3.         The undernoted table would assist us to understand various components in finalization of petrol prices.

                                                                                                   Amount in Rupees

Calculation of Retail Price for Petrol (per litre)  in DELHI  as on 10th May,2021
Basic OMC Cost Calculation
(i)  Crude Oil	31.56
(ii)Refinery Processing + Refinery Margins + OMC Margin+ Freight Cost, Logistics	02.20
(a) Fuel Price after Processing	33.76
Central Government Taxes & Dealer Commission
(i)Additional: Excise Duty + Road Cess as Charged by Central Government	32.90
(ii) Commission to Petrol Pump Dealers	03.75
(b) Fuel Cost Before VAT	70.41
(iii) Additional :VAT @ 30%	21.12
©Final Retail Price per litre in Delhi	91.53

                    

               Data tabulated above, clearly reflects that the cost of Petrol Price after processing by OMCs works out to be just below 37% or so  of the final petrol price shell out by the consumers. However, a major chunk of Retail Price ( approx. 59%) fills the kitty of different Governments. Here it is also pertinent to note that while Central Govt. taxes are calculated/levied Petrol per litre i.e. quantity specific, State Governments Sales Tax (VAT) is charged on ad valorem basis. Of course, excise duty etc. is revised, frequently, in recent past.

 4.        In today’s dynamic situation, it is fair enough that on fluctuation in international crude prices there is bound to be revision in domestic prices. However, on reduction of international prices, at times, southward trend of prices is not reflected in domestic market. Mainly due to  upward revision in Central/State taxes. As such, common man is deprived of benefit/ advantage of softness in crude prices, internationally. Recently, in some states, petrol price per litre has crossed century mark. A record high, indeed. Fuel price in different states differs depending upon the incidence of local taxes such as VAT and freight charges.       

5       In the present regime of decontrol of prices, no one would  and should complain against fluctuation in domestic  prices (up and down) since the crude  prices are linked to Global Market. However, to be fair enough, undernoted suggestions may be taken into consideration by the concerned authorities:

     1.    All Govt. taxes on fuel to be levied as specific duties (quantity based) and not on ad valorem basis.

    2.    There should be a system in place  to ensure that frequency of rationalization of Excise and Custom duties, (specific duties) to be  restricted once or twice  in a year. Further, it will be preferable that  revision is mandated by  the Parliament.

3.    During election process, in any part of the country, fuel prices need to be worked out regularly by Oil Marketing Companies on daily basis, as usual, and implemented, accordingly. 

 4.   Use of an alternate fuel in place of petrol/diesel is to be encouraged particularly for personal and commercial vehicles. E-mobility which is already there, though at a limited scale, is an important example of alternate / renewable source of energy. At present, though EV market penetration is quite low, the GOI is working on it and has set an ambitious target to improve E-mobility substantially by 2030. The move would not only reduce dependence on crude oil but also contribute to combat pollution

5. Last but not the least, levy of sales tax (VAT) on petroleum products to be brought under the ambit of    GST Council, a constitutionally mandated federal body.

                                           Stay home, Stay Safe. Stay blessed.

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