ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Case for Tax Rate Rationalisation

Taxes on Petro Products

Petro products are price-sensitive, as these constitute key inputs to private consumption, industrial production, and public transportation. Petro prices have global linkage and exhibit high volatility. A quantitative and historical analysis of taxes on petroleum products in India, which is largely import-dependent, is undertaken, as the tax component constitutes 40%–50% of the retail price. During 2015–16 and 2016–17, the government could have reduced tax rates on petrol and diesel, but it did not, probably because of the wider considerations of fiscal balance and development imperatives.

Tax on petroleum products constitutes a significant fiscal instrument. Besides being items of revenue receipt for the central and state government exchequer, taxes on petroleum products are cost items to producers. Producers pass these on to customers; therefore, taxes on petro products add to the selling price of end products.

For every government, petroleum products are easy objects of taxation, as these products are taxed in bulk at the supply sources, and taxes are paid by marketers, who are always limited in number. As petroleum products are liquid or gaseous, and are hazardous, these have a well-defined supply chain, and well-structured documents make tax avoidance difficult. Some of the milestone supply links become easily identifiable points of tax collection.

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Updated On : 21st Dec, 2018

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