The petrol price hike benefits State Governments more than the oil retailers.
On every litre of petrol purchased in Chennai at the current price of Rs 72.73 a litre, the State earns Rs 15.93 and the Centre earns Rs 14.78.
The reason lies in the base for taxation, a senior Government official said. States levy tax on base price and the Central duties such as custom and excise on the motor fuel.
If the public sector oil retailers hike price, automatically the base for the States to levy value-added tax or sales tax goes up.
“Ultimately, it is the State Governments which get maximum value out of the price increase,” he said.
At present, the State tax component is highest in Andhra Pradesh followed by Punjab and Karnataka. On the recent price increase, the official said, it is too early to ascertain the exact gain for each State.
There have been instances earlier when due to political pressure some of the States, the Congress-ruled ones, had announced that the increased part of the retail price will be spared from the higher tax.
But will the States fall in line this time?
With the fall in the growth of revenue, various State Governments will find it hard to take such a step, the official said.
Meanwhile, the Ministry of Petroleum and Natural Gas has come in support of the oil retailers – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.
The oil retailers incur revenue loss due to selling auto and cooking fuel below the market price. To worsen the situation rupee has depreciated from Rs 45 versus dollar to over Rs 49 versus dollar.
The revenue loss for the oil retailers has increased by Rs 8,000 crore on account of every Re 1 depreciation against the dollar.
On the other hand, the average price of Indian basket of crude has gone up from $85.09/barrel in 2010-11 to $110/barrel this year, showing a growth of 30 per cent.
An increase of $1 adds Rs 3,000 crore to the revenue loss suffered by the retailers.
The total revenue loss for the current fiscal is estimated at Rs 1,29,989 crore. The combined losses of Hindustan Petroleum and Bharat Petroleum for the first half of the current fiscal are more than Rs 12,000 crore and Indian Oil is also likely to be in red, if Government does not give cash subsidies.