India

Data | As petrol prices cross ₹90 per litre, new cess could deepen Centre’s coffers


Not one rupee of the Rs. 1.25-lakh crore of cess collected on crude oil was transferred to an oil industry development body it was meant to finance, between FY10 and FY19

Following Mumbai, petrol prices in Chennai breached the ₹90/litre mark in February. Delhi and Kolkata are about a rupee short of the mark. Heavy taxation on crude oil combined with a significant uptick in international crude prices are responsible for this recent price rise. While the recently introduced Agriculture Infrastructure and Development cess on crude oil will not burden the customers, the money collected will not be shared with States as they are excluded from the purview of the divisible pool of taxes. Importantly, not a single rupee of the cess collected on crude oil in the past ten years was used for the intended purposes.

Steep rice

Petrol prices per litre in Delhi (Rs 88.4)(orange line), Mumbai (Rs 94.9)(green line), Chennai (Rs 90.7)(blue line), and Kolkata (Rs 89.7)(red line) reached the highest mark in at least four years on February 13.

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Tax surge

The base price of petrol in Delhi without taxes, duties and commissions was ₹47.12 in May 2014 and reduced to ₹29.34 in February 2021 – a 37% decrease. In the same period, taxes, duties and commissions recorded a 133% increase from ₹24.29 to ₹56.59. Tax levied by the centre increased by as much as 217%.

Also read: Data | For every Rs 100 spent on petrol by Indians, Rs 63 goes to Centre and State as tax in Dec. 2020

New cess on the block

Cesses are collected for a specific purpose, and they need not be shared with States. In the FY22 budget, an Agriculture Infrastructure and Development (AID) Cess was announced on select items, including petrol and diesel. This new cess is a part of the excise duty component (Centre’s tax) of the petrol and diesel prices. Road and infrastructure cess form the biggest share of the excise duty. The table compares the parts of the excise duty component before and after the introduction of the AID cess.

 

Misused funds

The Central government is expected to transfer the cess collection to the designated Reserve Funds so that it can be utilised for the earmarked purposes. However, the CAG observed that the Centre retained 40% of all cess collections in FY19. Not one rupee of the ₹1.25-lakh crore of cess collected on crude oil was transferred to an oil industry development body it was meant to finance (FY10-FY19).

Source: PPAC, IOCL, CAG

Also read: Cess pool: On CAG report of Centre’s accounts

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