Will Kerala sacrifice a part of the 'fuel loot' it is pocketing as part of Modi's frequent price hikes?

With fuel prices moving skywards like a rock climber in a hurry, states like Kerala that are politically opposed to the BJP-ruled Centre are being asked to shed a portion of the additional gains they have pocketed by way of increasing sales tax revenue.

The LDF government in Kerala is vehemently critical of Narendra Modi's frequent fuel price hikes but is silent about the bounty that has come its way as a result of these hikes. Kerala is one among the only seven states in the country that have enjoyed an over 50 per cent increase in its petroleum sales tax collection between 2014-15 and 2019-20.  

From Rs 5,378 crore in 2014-15, Kerala's tax collection from petrol and diesel sales soared to Rs 8,074 crore in 2019-20, an increase of 50.1 percent. This does not include the additional sales tax of Rs 1 per litre and the one percent petrol cess. In the same period, sale of petroleum products in Kerala grew only 21.20 percent, from 5390.2 metric tonnes to 6533.46 MT.

The other states that have savoured the fruits of the Centre's sin are Karnataka (77.45 percent rise in collection in five years), Rajasthan (59.07 percent), Telangana (122 percent), Uttar Pradesh (59.88 percent), Madhya Pradesh (56.90 percent) and Bihar (116.22 percent).

Balagopal rules out relief

The LDF government in Kerala has already said it has no plans to effect a cut in the sales tax on petrol. "In 2018, during the tenure of the first Pinarayi Vijayan government, we had reduced the sales tax on petrol to 30.08 percent from 31.8 percent and that on diesel to 22.76 percent from 24.52 percent," Finance Minister K N Balagopal said. "We have retained the tax at that level ever since," he added, clearly hinting that there is nothing more Kerala can do at the moment.

It is true that Kerala has revised its sales tax on petroleum products just once in the last six years, and it is also a fact that the sole revision done in 2018 was to bring down the sales tax on both diesel and petrol.  

Trickle down benefits of sin

However, the nature of the sales tax is such that if at all Kerala wants to enhance its revenue from petrol sales it has to do nothing at all. It only has to wait for the Centre to do what is considered highly condemnable: hike excise duties. Since May 2, the Modi government has hiked the prices of petroleum products at least 21 times.

Sales tax on petroleum products is not a fixed number, it is a percentage. It is imposed not on the basic cost of the fuel, but on a cost that is a combination of the basic fuel cost, central government duties and the dealer commission. So when the centre increases the excise duty on fuel, which it is doing almost on a daily basis these days, additional revenue will automatically fall into Kerala coffers.  

In Kerala, nearly 25 per cent of the selling price of petrol and 20 percent of that of diesel are accounted for by the sales tax collected by the state government.  

Petrol pump

How fuel prices are calculated

On June 14, the price of crude was US$ 73.35 per barrel. Given that one dollar is Rs 73.23, the cost is Rs 5,371.42 per barrel. Since one barrel is 159 litres, crude oil cost per litre on June 14 is 33.78 per litre.

To this basic price is added the cost of processing, refinery margins, margin of oil marketing companies, freight cost and logistics. For petrol this is Rs 3.6 per litre, and for diesel, Rs 6.1 per litre. So the fuel price after processing is: Petrol - Rs 37.38; Diesel - Rs 39.88.

Upon this post-processing cost is imposed the central levies and dealer commission. The central levies (basic excise duty, special additional excise duty, agriculture infrastructure and development cess, and road and infrastructure cess) works out to Rs 32.9 per litre for petrol and Rs 31.8 per litre for diesel.  

There is also the commission to petrol pump dealers: Petrol - Rs 3.79; Diesel - Rs 2.59

The approximate fuel cost in Kerala on June 14, on which Kerala imposes sales tax: Petrol - 74.07; Diesel – 74.27. The remaining amount that stretches the price to near 100 is the Kerala government's share.

Why Kerala should forego part of its share

There is at least one reason why the Kerala government should provide at least a marginal relief to consumers.  

Kerala has one of the highest fuel prices in the country. The petrol and diesel prices in Kerala (Thiruvananthapuram) on June 14 are: Rs 98.45 and Rs 93.79. This is higher petrol and diesel prices than all the four metros except Mumbai on June 14. Delhi (Rs 96.41 and Rs 87.28), Chennai (Rs 97.69 and 91.92), Kolkata (Rs 96.34 and Rs 90.12). In Mumbai, the costs are Rs 102.58 and Rs 94.70.

As Balagopal said in the Assembly, there are many other states that impose a higher sales tax than Kerala. Congress-ruled states like Rajasthan and Punjab, for instance.  

Nonetheless, given the transportation cost, the fuel prices in Kerala are higher than even states where there is a higher sales tax. Rajasthan, Tamil Nadu and Assam, all of which have a higher sales tax on petrol, have a lower petrol price than Kerala. Same is the case with diesel prices in Maharashtra, Tamil Nadu and Rajasthan, where the sales tax on diesel is higher than in Kerala.

Constantly escalating fuel prices has already jacked up prices of essential commodities, most of which comes from outside, in Kerala.

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