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States add to price of petrol with taxes
November, 16th 2011

Fuel companies may have decided to knock a couple of rupees off prices to ease the burden on the common man, but states continue to charge high local taxes that push up prices further . Though state governments usually take a belligerent stand against fuel price hikes, they silently gain by way of the taxes that they impose.

Tamil Nadu, for instance, charges a rather high 27% value added tax (VAT) on fuel.

The Tamil Nadu government has earned 15% more by way of taxes on fuel this year compared to last year, even though it lowered VAT to 27% from 30% after the decontrol of petroleum prices . Tamil Nadu's income on each litre of petrol sold is about 15.40 at current prices. With an average monthly petrol sales of 17 crore litres, the state earns close to 264 crore a month. That would amount to over 3,000 crore annually. Last year, TN earned about 13.40 per litre (at 30% VAT), when pump prices were 68 a litre.

Since VAT is charged on the base price, each time the price of the essential commodity rises, the state earns a few more crores. Tamil Nadu commercial taxes minister Agri S S Krishnamoorthy shied away from commenting on the revision of VAT, and said chief minister Jayalalithaa makes all decisions on tax slashes . If the Tamil Nadu government cuts VAT by 5%, prices at the pump can drop by 4 to approximately 69 a litre.

Uttarakhand, which is due to go to the polls next year, has cut VAT resulting in a price drop of 45 paise per litre. Tamil Nadu reduced VAT by 3% to 27% this March, just before the election dates were announced.

Like Tamil Nadu, West Bengal also charges 27% VAT, while Odisha charges 19%. Andhra Pradesh charges a hefty 33% VAT on petrol, followed by Punjab and Karnataka, which charge 32.96% and 31.25% respectively , according to the Petroleum Planning and Analysis Cell. Uttar Pradesh charges 26.6% VAT.

With Central government taxes and duties plus the state's VAT, approximately 42% of the petrol price paid comprises taxes . Without these taxes, a litre of petrol would cost about 41. Consume pay a 76% premium on the original cost thanks to various forms of taxes and charges in India. The retail price of petrol prices in neighbouring countries such as Sri Lanka ( 63), Pakistan ( 50.80) and Bangladesh ( 56) are much lower.

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