Why Are Taxes On Petroleum So High in India?

 


India is the world's third-largest oil market, and it is highly reliant on crude oil to power its ambitions and growth. Every year, India uses approximately 211.6 million tonnes of oil. India produces fewer than 35 million tonnes of this total. India lacks sufficient reserves, and new oil sources have not been discovered. 

India obtains its oil from nations such as Iraq, Saudi Arabia, the United Arab Emirates, the United States, and Canada, among others. India imports approximately 85% of its oil, which is the primary cause of the country's high gasoline costs. India is reliant on imports, with OPEC+ - the organization of petroleum exporting nations - and Russia sharing part of the responsibility. 

They have reduced supply, but demand is increasing. As a result, prices have risen. People in India are spending more than 100 rupees per liter on gasoline, and this increase in fuel costs affects every Indian family. 


What alternatives does the government have? 

It's critical to understand gasoline prices in India because the world price is presently about $60 per barrel - around 28 rupees per liter. 


Taxes cost Indians close to a hundred rupees. Excise duty and taxes account for almost two-thirds of what a buyer spends. The basic price of gasoline, transportation costs, and dealer commission are just a fraction of the total. For example, on February 16, the price of fuel in Delhi was 89.29 rupees per liter. The basic price of fuel is just 31.82 rupees out of 89.29 rupees. 


Then follows freight of 0.28 rupees, followed by the dealer price of 32.10 rupees. The excise tax is 32.90 rupees, and it is collected by the federal government. 


The dealer commission is 3.68 rupees and may vary based on your region. The next tax is VAT, or value-added tax, which is imposed by the state government and is set at 20.61 rupees. According to CARE Ratings, India has the highest fuel tax - 260 percent on the basic price of petrol and 256 percent on diesel. In Germany and Italy, the gasoline tax is 65% of the retail price. In the United Kingdom, it is 62%. In Japan, it is 45%, whereas, in the United States, it is 20%. It is 260 percent in India! 


Previously, the government-controlled petrol and diesel prices by paying subsidies to oil marketing firms, which protected customers from volatility in the international oil market. 


The government may still act in severe situations. India may start by diversifying its imports. Currently, India is highly reliant on West Asia for oil, with the area accounting for about 61% of the oil transported into the nation. Previously, India had a larger supply base. It is now dependent on OPEC+. 


With Joe Biden in charge, India may be able to restart purchasing oil from Iran and Venezuela. According to reports, India is already in talks with both of these nations. Once upon a time, Iran was a significant supplier to India. However, due to the Trump administration's sanctions on Iran, there have been no imports from Iran since 2019. 


In the fiscal year 2018-19, India purchased 23.5 million tonnes of Iranian oil, accounting for almost a tenth of the country's total demand. Although oil from Iran and Venezuela is less expensive, both nations have been sanctioned by the US. 


To combat rising oil costs, India's plan must include exploring new markets and finding a means to work past US sanctions. India must also reconsider hefty taxes and regulate in severe cases. India must also explore new reservoirs at home and gradually transition to an oil-free future.

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