Amidst the continuous decline in the price of crude oil, the question in people’s mind is why the government is not cutting the prices of petrol and diesel. The government says that the losses of the companies are huge and they are now compensating them. Regarding the prices of petrol and diesel, people’s attention usually goes to the international crude oil prices or the excise duty imposed by the central government. But the reality is that the role of states in deciding the final price of fuel in India is equally big.
The reason for this is VAT, sales tax and various types of cesses and surcharges imposed by the state governments. This is the reason why there is a difference of several rupees in the prices of petrol and diesel in different states of the country in a single day. Bihar holds a different place in this entire structure. Bihar is at the forefront in the country among the states in imposing 30 percent additional surcharge on petrol and diesel in addition to VAT. Although states like Telangana and Andhra Pradesh are ahead in terms of total VAT rate, the surcharge is higher in Bihar. Let us understand in detail in this news what is the tax system on petrol and diesel in Bihar and how is the tax decided in other states.
What is the tax model of Bihar?
According to the latest data of PPAC, VAT is imposed on petrol in Bihar at 23.58 percent or Rs 16.65 per liter, whichever is higher. On top of this, the state government also charges an additional 30 percent surcharge on the VAT amount, which is recorded as “Irrecoverable Tax”. The same 30 percent additional surcharge is applicable on diesel too along with VAT of 16.37 percent or Rs 12.33 per litre. This additional tax makes Bihar different from other states. For this reason, Bihar is also being discussed these days. On social media, people are cornering the government regarding its decision to charge additional surcharge and toll on state highways.
Which states are ahead in terms of total tax?
Bihar is definitely number-1 in surcharge, but in terms of total tax burden the picture is a little different. That is, the picture changes in terms of where the total tax is levied. Telangana charges about 35 percent VAT on petrol and hence is among the most expensive oil markets in the country. In Andhra Pradesh, along with VAT, additional road development cess is charged per liter. Tamil Nadu follows a fixed tax model with a percentage-based VAT, while Assam has both a percentage-based tax and a minimum tax. For this reason, petrol prices in the country are decided not only by the price of crude oil but also by the tax policy of the state governments.
After all, why do states impose so much tax on petrol and diesel?
The biggest reason for this is that petrol and diesel are still out of the GST regime. The central government levies excise duty while state governments levy VAT and other local taxes. Since states have limited means of tax collection, fuel revenue is very important for them. From this income, resources are raised for road construction, social schemes, health, education and other development projects. Experts believe that fuel tax is one of the most stable and reliable revenue sources for states.
Why is there no consensus on inclusion in GST?
The demand to bring petrol and diesel under the ambit of GST has been rising for many years. If this happens, then there may be considerable uniformity in fuel prices across the country and petrol and diesel may also become cheaper in many states. But for this, the recommendation of the GST Council and the consent of the states is necessary. States fear that after the implementation of GST, a large part of their revenue will reduce and their freedom to decide tax policy will also reduce. This is the reason why no major decision has been taken in this direction till now.
Fuel taxes are a major source of cash for state governments. Although the Bihar government has not released detailed public details of total revenue from petrol and diesel separately in recent years, experts believe that for consumption-oriented states, this income plays an important role in budget management. This is the reason why most states avoid making major changes in their VAT structure despite the fall in crude oil prices.
How much does it affect the common man’s pocket?
The impact of higher tax on fuel is not limited to vehicle owners only. Increase in transport costs also affects the prices of vegetables, milk, construction materials, e-commerce delivery and many everyday products. Truck and bus operators increase fares as fuel costs rise, the impact of which ultimately reaches consumers. Therefore, tax on petrol and diesel is counted among the major factors increasing inflation in the economy.
Whenever there is a discussion about bringing petrol and diesel under the ambit of GST, the tax structure of many states including Bihar comes into the center of discussion. Bihar’s additional surcharge of 30 percent shows that state governments use fuel tax not only as a revenue source but also as a financial strategy. If the GST Council takes any decision in this direction in the coming years, it will impact not only the prices visible at petrol pumps but also the financial health of the states. At present, it is certain that the mathematics of fuel prices in the country is decided not only by the international oil market but also by the tax policy of the states, and in this matter Bihar currently stands out.
Also read- Crude oil fell by 28% in 40 days, when will petrol and diesel become cheaper in India?
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