Fact-check | No, state govts don’t levy more tax on petrol than Centre

A false claim that states levy more tax on fuel prices has gone viral on social media

Several social media users have shared a "break-up" of fuel prices that claims state governments levy twice as much tax on petrol as the Centre. Multiple Twitter users have posted this viral claim. The fuel prices have soared to record highs and the central government is under criticism from various sections, including the Opposition parties who have staged protests across the country.

The claim is also widespread on Facebook.

[Viral text: All Petrol Pump should have a board like this: Basic rate 35.50 Central government 19.50 State Government 41.55 Dealers 6.50 Total 103.05 Then public will understand who is responsible share it with your groups and friends.]

Alt News has received multiple verification requests for the message.

It was recently reported that India is the world’s third-largest crude oil importer. The country imports 84 per cent of its oil requirements. Fuel prices change each month or even every day in India due to external factors like global crude oil prices. But internal factors like taxes and dealers’ commissions also impact the price of domestic petrol.

Petroleum Planning & Analysis Cell (PPAC), in the FAQ section says, "The fuel prices are decided by the Public Sector Oil Marketing Companies (OMCs) namely, Indian Oil Corporation Limited, Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited, in line with the changes in the international market prices and other market conditions."

According to ICRA Limited, an Indian government credit rating agency, the cess on unbranded petrol remains unchanged at Rs 32.9/litre in FY21. This is also called excise duty which is collected by the central government. Speaking to Alt News, Prashant Vasisht, vice-president and co-group head at ICRA, said, “The excise duty was last changed in May 2020 by the central government. Unlike international fuel prices, this doesn’t change daily. It is fixed by the central government.”

The tax on fuel does not fall under the Goods and Services Tax (GST). Thus fuel prices in India vary from state to state and even city to city. The latest retail fuel prices in metro cities are listed on PPAC’s website. For the ease of explaining the price break-up, this article analyses the fuel prices in the national capital as of July 1, according to Bharat Petroleum (BP).

The latest state-wise taxes are listed on the website of PPAC under the ‘Sales Tax‘ sub-section. Taxes in most states range between 20-25 per cent. The highest rate of tax on fuel is in Manipur (36.50 per cent VAT), followed by Rajasthan (36 per cent VAT+ Rs 1500/KL road development cess) and Karnataka (35 per cent sales tax). The lowest tax rate is in Andaman & Nicobar Islands at 6 per cent. No other state charges sales tax or VAT in single digit.

Bharat Petroleum gives the following price build-up of petrol at Delhi as of July 1.

Price Charged to Dealers (excluding Excise Duty and VAT): This is the price OMCs charge the dealer. Vasisht explained, “The price charged to dealers (as mentioned in the price buildup of auto fuels) is based on the trade parity price (TPP) and includes a freight component. The TPP is calculated as 80 per cent of import parity price plus 20 per cent of export parity price.” As per PPAC, Import Parity Price (IPP) represents the price that importers would pay in case of actual import of product at the respective Indian ports. This includes FOB price, ocean freight, insurance, customs duty, port dues, etc. While the Export Parity Price represents the price oil companies would realise on the export of petroleum products. This includes FOB price and advance license benefit (for duty-free import of crude oil pursuant to the export of refined products).

Excise Duty: This is the cess charged by the central government and it is consistent across the country. As of July 1, excise duty is Rs 32.90 per litre.

Dealer Commission: According to Mint, the dealer commission is different for petrol and diesel and varies from the location of fuel pumps, ranging from Rs 2-4/litre. “This amount goes to the petrol pump owners,” said Vasisht. Alt News spoke to a petrol pump owner in Delhi who confirmed the same and added, “This is the source of revenue for petrol pump owners. It covers our operating costs such as salaries, water, electricity bill, etc.”

VAT: This is the cess charged by the state. In Delhi, this stands at Rs 22.81 or 30 per cent as per PPAC and BPCL. The tax is levied on the sum of the previous three components (price charged to dealers, excise duty and dealer commission) i.e., 30 per cent of Rs 76.04 = Rs 22.81.

Studying excise duty and VAT in Delhi makes it clear that the Delhi government doesn’t charge more tax on fuel than the central government.

The VAT in Delhi is 30 per cent of Rs 76.04 = Rs 22.81. We calculated the share of excise duty (prior to VAT) in Delhi (32.90/76.04×100) and it comes to 43.27 per cent.

As pointed earlier, the highest VAT is 36.50 per cent in Manipur. Thus, no state government charges more tax than the central government.

Earlier, Alt News had recently published a report debunking the false claim that states levy 55 per cent tax on domestic LPG against the centre’s 5 per cent. Domestic LPG is taxed under 5 per cent GST divided equally between the state and centre.