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International Journal of Management (IJM)
Volume 12, Issue 1, January 2021, pp.153-174, Article ID: IJM_12_01_014
Available online at http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=12&IType=1
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: 10.34218/IJM.12.1.2021.014
© IAEME Publication Scopus Indexed
INDIAN PETROLEUM TAXATION ANALYSIS
Niladri S D Biswas
Research Scholar- Adamas University, Kolkata, West Bengal, India
Dr. Prithvish Bose
Senior Professor, Adamas University, HOD- Department of Management,
Kolkata, West Bengal, India
Dr. Rohit Kumar Sharma
Associate Professor, Adamas University Kolkata, West Bengal, India
ABSTRACT
India being the third largest importer of crude oil speaks volumes about the
consumption rate and the dependability which the society has on this non- renewable
source of energy and has over the years become more expensive. Though we notice a
decline in global oil prices in the last few years along with crude indexes crashing due
to the on -going pandemic, retail prices for the Indian consumer have remained high
and stagnant . Compared to global oil prices, which currently is as low as $40 a barrel,
the Indian retail oil consumer is paying a hefty amount which is very close to what had
to be paid when global crude oil prices were $ 100 a barrel. This paper investigates the
reason for such high retail prices which the consumer has to pay as no benefits in
connection to low global oil prices seem to reach the end consumer. A comparative
analysis pertaining to the different taxes associated with petroleum has been assessed
for a period of six years.
Key words: Fuel prices, Taxes, Excise, VAT, Sales tax, Contribution to Exchequer,
Cess, Royalty.
Cite this Article: Niladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma, Indian
Petroleum Taxation Analysis, International Journal of Management, 12(1), 2021, pp.
153-174.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=12&IType=1
1. INTRODUCTION
The Indian crude oil basket consists of a mixture of sour crude (Oman & Dubai grade) along
with sweet crude (Brent grade) in the ratio 75.50:: 24.50. These grades depend on the sulphur
content of the crude oil depending on the geographical location from where it has been
resourced. The other major global oil index commonly known as the WTI (West Texas
Intermediate) ,does not play any role in the Indian crude oil story. The Indian basket of crude
oil primarily consists of the Dubai/Oman Grade which is slightly lower in quality, categorizing
http://www.iaeme.com/IJM/index.asp 153 editor@iaeme.comIndian Petroleum Taxation Analysis
it as sour grade. Countries involved in exporting oil from this category of crude oil suppliers
include Dubai, Oman and Abu Dhabi. The remaining 25% is sourced from Brent Crude which
falls in the sweet category of petroleum due to its low density and low sulphur content. This
form of crude oil is ideal for refinement into diesel, petrol and other high end fuels required for
aviation in particular. The Brent grade consists of 12 grades from OPEC countries like Saudi
Arabia, Venezuela, Russia, Iran, Angola, Algeria etc.
India a country of 1.3 billion is the third largest consumer of oil after USA and China as per
PPAC data published by the Ministry of Petroleum. India is also the country to have the 4th
largest crude oil refining capacity and stands behind USA, China and Russia. Surprisingly it is
also the 25th largest Exporter of crude oil in the world and has made its name in the list of
World’s Top 30 Crude Oil producing countries. Looking at India’s vast population and rankings
amongst the biggest consumers of oil globally, the retail price of petroleum is the highest
amongst major global economies. In South-East Asia , India’s MRP of petroleum stands highest
amongst neighboring countries like Pakistan, Sri- Lanka, Nepal and Bangladesh. Even if
compared globally, India has the second highest taxation on Petroleum after France , which has
its taxes marginally higher than that of India. As per PPAC data, MRP of petrol and diesel
around the neighboring countries are as follows:
Table 1
Country Price of Petrol (Rs.) as on Price of Diesel (Rs.) as on
1.6.2020 1.6.2020
India (Delhi) Rs. 79.56 per litre Rs. 78.85 per litre
Pakistan Rs. 33.17 per litre Rs. 36.91 per litre
Bangladesh Rs. 77.58 per litre Rs. 58.64 per litre
Sri Lanka Rs. 55.79 per litre Rs. 42.35 per litre
Nepal (Kathmandu) Rs. 60.38 per litre Rs. 53.46 per litre
Source: Pakistan State oil, Bangladesh Petroleum Corporation, Nepal Oil Corporation, Ceylon
Petroleum Corporation
It is not that the paper is intended to question the taxation policy of the central government
but to compare the excessive taxes imposed on oil which in turn raises inflation at a time when
the economy is struck by the on-going pandemic. Economic reports published by RBI indicate
a massive fall in GDP of -27%. Though India has witnessed a very fast recovery in
unemployment rates due to normalcy returning to the economy, currently unemployment rates
stand at 6.7 % in average for the entire country. Though this recovery has been quick and
appropriate for an economic rebound, inflation is on the rise in general. Focus economic
consensus panelists have predicted consumer price inflation at 5.1% for 2020 and a further
increase in 2021. With the price of petrol & diesel being high, the cost of transportation in
general for all consumer goods increases due to the increase. With inflation on the rise, the
value of rupee as well as the purchasing power too is depreciating for the common man.
Though there are other ways to meet indirect tax targets for the government, Petroleum
seems to be the easiest way to collect revenues for both Central & State Governments.
Currently, in 2020, the taxes levied on petroleum have been the highest ever in the history of
India and shockingly it is one of the highest globally as well. The following table below would
present the taxes levied on petroleum by individual countries in 2020 as per data released by
the Ministry of Petroleum.
http://www.iaeme.com/IJM/index.asp 154 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
Table 2 Petrol
Country Retail Selling Ex- tax price Taxes % of taxes
Price
India Rs. 71.26 Rs. 21.51 Rs. 49.75 70%
France Rs. 105.02 Rs.30.25 Rs. 74.77 71%
Germany Rs. 99.63 Rs. 29.51 Rs. 70.13 70%
Italy Rs.117.29 Rs. 35.81 Rs. 81.48 69%
Spain Rs. 92.01 Rs. 36.80 Rs. 55.20 60%
UK Rs. 103.28 Rs. 31.15 Rs. 72.14 70%
Japan Rs. 92.93 Rs. 46.04 Rs. 46.89 50%
Canada Rs. 43.39 Rs. 21.48 Rs. 21.91 50%
USA Rs. 37.05 Rs. 27.37 Rs. 9.68 26%
Source: Prices of France, UK, Germany, Italy, Spain, Japan, Canada & USA : IEA Reports , April
2020.
Note: VAT excluded from the prices of automobile diesel of France, Italy, Spain & UK as it is
refunded to the industry.
Table 3 Diesel
Country Retail Selling Ex- tax price Taxes % of taxes
Price
India Rs. 69.39 Rs. 20.94 Rs. 48.45 70%
France Rs. 100.79 Rs.33.49 Rs. 67.31 67%
Germany Rs. 89.69 Rs. 36.39 Rs. 53.30 59%
Italy Rs. 108.50 Rs. 37.80 Rs. 70.71 65%
Spain Rs. 84.71 Rs. 38.63 Rs. 46.09 54%
UK Rs. 109.81 Rs. 36.64 Rs. 73.18 67%
Japan Rs. 79.70 Rs. 50.78 Rs. 28.92 36%
Canada Rs. 52.34 Rs. 32.22 Rs. 20.12 38%
USA Rs. 50.24 Rs. 38.96 Rs. 11.28 22%
Source: Prices of France, UK, Germany, Italy, Spain, Japan, Canada & USA : IEA Reports , April
2020.
Note: VAT excluded from the prices of automobile diesel of France, Italy, Spain & UK as it is
refunded to the industry.
Observing the table above it becomes evident that India ranks 2nd globally with 70% taxes
on petrol after France. Germany & United Kingdom happen to be the other European nations
taxing 70% on petroleum. Other countries have lower rates with USA charging a mere 26% tax
on petroleum. Shifting focus on the taxation of diesel, India ranks 1st globally in taxing 70%,
the most by any country. Other countries have a variance in petroleum & diesel taxations where
the general trend is to tax petrol higher than diesel. India has equivalent taxes of 70%, both for
http://www.iaeme.com/IJM/index.asp 155 editor@iaeme.comIndian Petroleum Taxation Analysis
petrol and diesel and there remains a very small gap in the prices of both petrol & diesel. Diesel
being used more by the commercial sector remains to be priced high due to the taxes imposed.
2. LITERATURE REVIEW
A lot has been written on the petroleum sector of India, including its prices, impact on the
economy in particular and various government policies which have affected key macro-
economic variables. The following is the review of such articles published previously.
(M.K. Anand, 2016) – This article investigates the impact of rising fuel prices on the Indian
economy and primarily focuses on the effect it particularly has on the agricultural sector. Both
kinds of impact, direct & indirect have been measured. The author further investigates the cost
of inflation and its impact on the food security bill due to the rise in fuel prices.
(Bhattacharya & Batra, 2009)- This paper has been written on the impact of international
oil prices on Indian inflation and output growth as well. The paper focuses on how inflation
reacts to the price changes and further goes on to prove that prices are also dependent on
government policies which are revised hastily and inducts a situational approach to oil pricing
mechanisms.
(Shome, Khatri, Mehndirattha & Joshi, 2018) – This paper deals with the idea of dynamic
fuel pricing in India. The Government of India first had a policy of re-pricing fuel every fort-
nightly to keep in pace with global oil prices. This mechanism was changed in 2017 and OMC’s
were allowed to set prices on a daily basis as per global crude rates. The authors carry out a
statistical test using the Mean adjusted Price model to check the effect of dynamic pricing
compared to the 14 day pricing mechanism used earlier. The authors also use a second pricing
model known as Average abnormal Price to measure the impact of dynamic pricing.
(Dr. Shefali Dani, 2014) – This paper investigates the reasons for high prices of petrol and
its general impact on the economy. The paper also mentions government policies like subsidies
in the petroleum industry and lastly suggests about a sustainable pricing mechanism required
for pricing fuel.
(Sivarajan, Mathew & Gowda, 2019) – This article in particular demonstrates the prices of
fuel in Bangalore city and its impact on the common citizens of Bengaluru. The paper also
investigates the role of government pricing and suggests ways to alleviate such problems.
Macro- economic issues like demand & supply, pricing, foreign exchange have been attributed
towards fuel price rise. A survey too has been carried out regarding the preference of mode of
transportation during fuel price hikes has been presented and the authors proves that public
transportation seems to be the choice of the citizens rather than private transportation facilities.
(Pankaj Bhatacharjee , 2013) – This is an entire thesis presented on the the impact of oil
prices on the Indian economy. The paper in detail discusses every aspect related to the
Petroleum industry and a series of statistical tests have been conducted to prove the same. The
study further investigates the impact of price of fuel on the wholesale price index, GDP,
Inflation and energy price relative to the productivity of capital and labor.
(Anand, Caody, Mohammad, Thakoor & Walsh – 2013) – This article analyses the
approaches to fuel pricing and studies the impact of such pricing on the Indian economy. The
article focuses in detail about the subsidies provided by the government to the masses and in
return the increase of fuel prices in meeting this deficiency is also assessed by the authors.
Factors like inflation, consumption and foreign exchange have been factored in to provide a
variance of results.
(Bhanumurthy , Das & Bose – 2012) – The paper presents the impact of high oil prices on
the Indian economy and presents a simulation model using macro economic factors to assess
the impacts felt due to the steep rise of petroleum.
http://www.iaeme.com/IJM/index.asp 156 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
(Parikh, Purohit & Maitra – 2007) - The research paper analyzes the demand and
consumption patterns of fuel in the Indian economy. Predictions for energy consumption have
been made for future years and econometric models have been used to create new models that
have been created for different petroleum based products to extract the variables that are
concerned with fuel at an individual level.
3. DATA
This paper would inculcate both qualitative and quantitative data to prove the main cause
responsible for high petroleum prices in India at a time when global crude oil prices have been
reasonably low.
Qualitative Data – The first part of the paper, finding the main cause for a price hike in
petroleum compared to global crude oil prices. Identifying the sole reason as taxation, various
articles, online blogs, research papers, financial journals and PPAC report have been used for
the purpose to gather qualitative data.
Quantitative Data- The second part of the paper would require numeric values in the form
of quantitative data to present the whole category of taxes levied by both central & state
governments. PPAC annual report 2020, 2019 along with Annual Reports published by the
Ministry of Petroleum from 2014, 2015, 2016, 2017 , 2018 & 2019 have been used to obtain
year on year data for the comparative analysis presented for the various categories of taxes
levied on petroleum.
4. METHODOLOGY
4.1 Data Collection
Qualitative Data- Sources of qualitative data are secondary in nature and are in the form of
articles published in financial papers, academic journals, annual reports published by the
ministry of petroleum , personal blogs written by eminent writers like Vivek Kaul and websites
containing information pertaining to the taxation of petroleum in India.
Quantitative Data- Sources of quantitative data are secondary in nature as well. Vital data has
been taken from reports published by the Petroleum Planning & Analysis Cell 2018, 2019 &
2020.Annual Reports published by the Ministry of petroleum have also been utilized to access
previous year’s data from 2014, 2015, 2016, 2017, 2018 & 2019.
4.2 Data Analysis
For the second part of the paper where individual taxes levied by both governments have been
analyzed, data from 2014 has been taken into consideration till 2019-2020. Apart from
presenting a comparison chart of Indian Crude Basket prices which are significantly attached
to the prices of Dubai/Oman & Brent crude have been shown.
To analyze the taxes levied on petroleum, the following have been compared year on year
from 2014-2019
• Price build-up of retail petroleum at Petrol pumps.
• Analysis of Excise Duties levied on Petroleum by Central Govt along with periodic
hikes from 2014-2019. Graphical Representation has been provided to view the
increments year on year.
• Analysis of Fixed VAT % levied by the State governments on petroleum along with the
different pricing mechanisms used by various states. Graphical representation of all
States & Union territories has been provided along with findings and observations. A
separate comparative analysis has been conducted for both petrol & diesel.
http://www.iaeme.com/IJM/index.asp 157 editor@iaeme.comIndian Petroleum Taxation Analysis
• Analysis of Government meeting Indirect Tax targets through excessive taxation on
petroleum. Same has been shown and analyzed graphically year on year with
comparisons on increase between 2014 - 2019.
• A detailed analysis of the Contribution to Exchequer has been conducted for the Central
Government comparing the following from 2014-19
o Cess on Crude Oil
o Royalty on Crude Oil
o Customs Duty on Crude Oil
o Service Tax Collection
o Dividend income to Central Government from Petroleum
Graphical representation of the above mentioned taxes too has been provided.
• A detailed analysis of the Contribution to the State Exchequer has been conducted from
2014-2019. The following have been assessed
o Royalty on Crude Oil
o SGST/UTGST
o Octori , Duties Incl. Electricity Duties
o Entry Tax
o Dividend Income to State Governments from Petroleum
The following have also been represented graphically
• A year on year percentage share of taxes between the Central & State governments from
Petroleum has also been shown graphically with the help of a Pie Chart.
5. RESULTS & FINDINGS:
If we observe the global trends for crude oil pricing in the last 5-6 years time span, it is clearly
seen that crude prices have fallen over the years and the Indian basket of crude prices have been
dependent on the prices of Brent & Dubai Crude Index.
Figure 1
Source: Investopedia
If Global oil prices were compared to the retail prices of petroleum in India, we see a huge
difference in the price drop of global crude compared to the expensive Indian retail price of
petroleum which has not fallen at all in the 5-6 years time span. It clearly indicates that the
http://www.iaeme.com/IJM/index.asp 158 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
Indian consumers of petroleum have not received the benefits of low global crude oil prices.
The following reasons have been attributed to the high retail prices of petroleum in India.
5.1 A battalion of taxes added by both Central Government & State
Governments.
Before analyzing the various taxes implemented by the Government, It is essential to
understand the basic pricing structure which is implemented by the oil marketing companies.
Table 4 Price build –up of Petrol @HPCL Retail Outlets in New Delhi
Elements Units Date as on 01-07-2020
Price to dealers (Excluding Excise duty & Rs./Ltr 25.28
VAT)
Add: Excise Duty Rs./Ltr 32.98
Add: Dealer’s commission (Average) Rs./Ltr 3.64
Add: VAT (including VAT on dealers Rs./Ltr 18.57
commission) applicable for Delhi @30%
Retail Selling Price at Delhi (Rounded off) Rs./Ltr 80.47
Source: Petroleum Planning Analysis Cell Report 2020
The price build up for Petroleum is comparatively simpler than the pricing structure for
Diesel, LPG and Kerosene. As per the prevailing pricing policies, the OMC’s pay Trade Parity
Price (TPP) for purchase of Diesel and Import Parity Price (IPP) for purchase of PDS Kerosene
and Domestic LPG from refineries. The Retail Selling price (RSP) is calculated of these
products are calculated by taking into account the following elements.
• Price paid to refinery
• Inland freight up to the market
• LPG Bottling charges
• Marketing cost & margin
• Dealers/ Distributor commission
• Excise duty
Out of all the individual pricing elements that constitute retail prices for both petrol & diesel,
this study would focus on the taxation part which is completely controlled by the central
government in the form of Excise duty and VAT which is levied and controlled by the State
governments.
5.1.1 Excise Duty
Central Excise duty is a fixed amount that is levied by the Govt. of India. The excise duty
charged is not a percentage of crude oil prices and hence is not impacted by the price of crude
oil. Currently in 2020, as we see the pandemic scenario de-escalating and the world returning
to normalcy, the government has imposed a phenomenally high excise duty amounting to Rs.
32.98 on petrol and Rs. 31.83 on diesel. The highlighted fact in this entire pricing episode is
that central government taxes are even higher than the basic prices of crude oil which eventually
leads to a high retail selling price. As per observations made from PPAC data, central excise
duty on petrol & diesel in the year 2014 was a mere Rs. 9.48 on petrol & Rs. 3.56 on diesel.
After the new government took over since 2014, till date there has been a nine fold increase in
Central excise duties which clearly reflects that the benefits of a low global crude oil price have
not reached the retail users of petrol & diesel in India.
http://www.iaeme.com/IJM/index.asp 159 editor@iaeme.comIndian Petroleum Taxation Analysis
There have been several instances of excise duty hike by the newly elected government
since 2014. The first hike was initiated in November 2014 when excise duty on petrol was
increased from Rs. 9.48 – Rs. 11.02 and diesel Rs. 3.56 - Rs.5.11. This was the first increase in
central taxes which was immediately followed by another hike in the very next month of
December 2014. In the year 2015, central excise taxes were revised a record number of times
in a single fiscal year. There were 4 consecutive tax hikes imposed by the government in 2015
which took the figure from Rs. 11.02- Rs. 21.48 per litre on petrol and Rs. 5.11- Rs. 17.33 per
litre on diesel. This increase was significantly continued till 2016. If compared to global crude
oil prices, which were approximately $ 112/ barrel in 2012 decreased drastically to $ 28/barrel
in 2016. This significant fall in global crude oil prices between 2012-2016 was close to 75 %
but Indian retail prices were decreased by a mere 13-15%. The benefits to be reaped by falling
crude oil prices was intentionally mopped up by the central & state governments in the form of
taxes from the common citizens of the country within this period.
On 4th October 2017, the government decreased the excise duty from Rs. 21.48 – Rs. 19.48
on petrol and Rs. 17.33- Rs. 13.33 on diesel. Though the decrease of excise duty was minimal,
it bought some relief to consumer pockets. In 2018, with fall of global crude, the Government
too responded with minimal tax cuts bringing the central tax down to Rs.15.98 on petrol and
Rs. 11.83 on diesel. In 2019, after the conclusion of the general elections and the Narendra
Modi government coming back to power, the excise duty was hiked by Rs.2 on both petrol and
diesel. The following year of 2020 which saw the Indian economy being shut down since March
due to the ongoing pandemic, the government had already increased the excise duty on
petroleum in March itself by Rs. 5 per litre on both petrol and diesel. As per the latest tax rate
revisions that happened in May 2020, the central government shot up the excise duty by Rs. 10
on petrol and Rs. 13 on diesel respectively. This significant increase in excise duty shoots up
the tax to Rs. 32.98 on petrol and Rs. 31.83 on diesel. It is surprising to witness tax rates being
higher than the base rates of fuel which currently is approximately close to Rs. 25.28 (excluding
excise + VAT).
35
30
25
20
15 Rs. Per Litre/Petrol
Rs. Per Litre Diesel
10
5
0
01-Apr-17
01-Dec-18
01-May-19
01-Jul-18
01-Oct-14
01-Mar-15
01-Aug-15
01-Jan-16
01-Jun-16
01-Oct-19
01-Mar-20
01-Nov-16
01-Sep-17
01-Feb-18
Figure 2 Central Government Excise Duty Periodic Hikes on Petrol & Diesel
Source: Petroleum Planning & Analysis Cell Analysis Report 2020
http://www.iaeme.com/IJM/index.asp 160 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
5.1.2 VAT + Sales Tax
Apart from the factor of Excise duty adding to petroleum retail prices, the second component
which too has been increased at a rapid rate by the individual state governments is the
component of VAT+ Sales Tax. Different State Governments have been levying high VAT
+Sales Tax averaging close to 25% if taken on weighted average basis. States are given full
autonomy in setting up these taxes which has resulted in the tax break up varying to the extent
of having different pricing mechanisms and types of charges.
It is easier to understand the various price mechanisms used by the state governments to
levy charges on petroleum. Few states and union territories like Odhisa, Karnataka,
Pondicherry, Andhra Pradesh and Telangana levy VAT as a direct % on petrol & diesel. The
national capital has its very own regime of taxation where a certain percentage on fuel is added
with additional charges in the form of air ambience charge. Certain states like Andhra Pradesh
follow a third combination of taxation, where, apart from charging a certain percentage on fuel,
the state also charges an additional charge.
Eg: As of 2020, PPAC data, Andhra Pradesh charges 31% VAT + Rs. 2.76 / Ltr additional
VAT on Petrol. Similarly for Diesel the state charges 22.25% VAT + Rs. 3.27 /Ltr additional
VAT. Other states like Kerala and Chhattisgarh use this mixed pricing mechanism of charging
a ( % ) + fixed charge.
Certain states like Rajasthan, Goa, Jammu& Kashmir, Gujarat and Punjab levy additional
taxes in the form of Road Cess, Green Cess, Cess on town rates and Education Cess apart from
charging a fixed (%) VAT on fuel.
The 4th kind of pricing mechanism followed by some states like Uttarakhand, Uttar Pradesh,
Jharkhand, Assam and Haryana have additionally set up a floor price limit to ensure that the
VAT on fuel is not less than the set value apart from the fixed (%) VAT which is charged
without a choice. Presented below is a graphical representation of the different rates of VAT
(Fixed) % levied by various State Governments.
From the chart above, it becomes evident that states like Telangana, Tamil Nadu, Assam,
Andhra Pradesh, Karnataka and Madhya Pradesh levy high fixed VAT returns averaging more
than 30 %. States like Delhi, Kerala and Rajasthan levy charges between the 25-30% fixed VAT
on petroleum which is comparatively lower than above mentioned states who charge more than
30% Fixed VAT . The lowest fixed tax on petroleum is levied by states like Arunachal Pradesh,
Gujarat, Mizoram and Tripura which is between the 20-25% thresholds.
If the same comparison is analyzed for Diesel, States in India all levy taxes on Diesel. Below
is the comparison of the same presented with the help of a Bar Graph. Compared to petrol taxes
in some states that exceeded a fixed VAT of 30%, diesel all over India is taxed with lower rates.
Though states use different pricing mechanisms as discussed above, diesel too follows the same
norm but is numerically lesser than the taxes levied on petrol.
If the graph below is analyzed, it is clearly observed that states like Telangana and Odhisa
levy the highest taxes which are 27% and 26 % respectively. Odhisa is also the only exceptional
state that levies equal taxes on both petrol and diesel. The other states in general tax petrol
higher than diesel. As mentioned earlier about the pricing mechanism of petrol, diesel too
follows the same route as per State government taxation norms. Other than Telangana and
Odhisa , Punjab levies a high tax on diesel but the breakup of taxation is different than other
states. The state of Punjab levies Rs. 1050/KL (cess)+ Rs.0.10 per litre (Urban Transport
Fund)+ 11.80% VAT+ 10 % Addition tax on VAT. This is the maximum breakup of the excess
taxation imposed on diesel b any state in India.
http://www.iaeme.com/IJM/index.asp 161 editor@iaeme.comIndian Petroleum Taxation Analysis
Fixed VAT % levied by State Governments 2020
(Petrol)
40%
35%
35.20%
32.66% 34%
33%
31% 32%
30% 30.08%
30%
27%
25%
25% 25%
25% 25% 26% 26.80%
24% 25% 25% 25%
22% 25%
% VAT TAX
22.26%
21% 22% 21.15% 23%
20% 20.11%
20%
17.45%
16.20% 17%
15%
10%
5%
0%
Figure 3
Source: Petroleum Planning & Analysis Cell Report 2020
The second tier of taxation is lower in scale and falls categorically in the 20-25% taxation
bracket. States like Maharashtra, Rajasthan, Karnataka, Assam and Andhra Pradesh all tax
diesel in the above mentioned tax bracket. There are states that levy minimum taxes which
range from 13%-19%. These states levy the least taxes in the country. States like Arunachal
Pradesh, Goa, Gujarat, Daman& Diu, Bihar, Meghalaya, Manipur, Mizoram, Sikkim, Tripura,
Uttar Pradesh and West Bengal levy taxes in the 13%-19% range. From the above analysis it
becomes clearly evident that majority of the states in India levy reasonable taxes on diesel
http://www.iaeme.com/IJM/index.asp 162 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
except for the likes of Punjab, Telangana and Odhisa. It also becomes evident that petrol is
taxed way higher than diesel to provide the commercial sector some relief.
Fixed VAT % levied by State Governments
2020 (Diesel)
30.00%
27%
25% 26%
25.00%
23.66% 25%
23% 23%
22.50%
22.76%
22%
21% 21.80%
21%
20.00%
18%
17% 17.48%
16.75% 17.15% 17.48%
16% 17%
15%
15.00% 14.50%
14% 15.50%
13.24% 14.50%
12% 12.50%
10.00%
9.02%
8.60%
5.00%
0.00%
Figure 4
Source: Petroleum Planning & Analysis Cell Report 2020
http://www.iaeme.com/IJM/index.asp 163 editor@iaeme.comIndian Petroleum Taxation Analysis
5.2 Central Government meeting 20% Indirect Tax Revenues through excessive
taxation on petroleum
5.2.1 Revenue for Central Government
To simplify the complexities of taxation in India, the government introduced the Goods and
Service Tax which categorized the tax levied on all goods and services on offer. Though the
intentions on behalf of the government were good to simplify the tax regime, little did the
creators of GST realize that the tax collection would fall short of targets set by the Government.
If this was not enough, the pandemic struck the economy and was the last nail in the coffin,
shutting down 70% of businesses around the country. With economic activity coming to a
grinding halt, tax collections too have fallen due to huge drop in revenues. To meet the tax
targets and increase government revenues via the easy way, the consumers of petrol and diesel
are paying a hefty amount in the form of tax. It is surprising to know that the current retail
market price of petroleum is constituted of 70% taxes. The figure seems staggering if compared
to global crude oil prices which is $40 a barrel.
With the imposition of phenomenally high taxes, both the Central government and the State
governments plan to mop up close to 2 lakh crores in revenue which is equivalent to 20 % of
all indirect taxes collected by the Government of India.
10,00,000
937379
9,00,000 911653
861625 Excise
8,00,000 Duty in
7,00,000 709825 Rs.
Crores
6,00,000
544772
5,00,000
4,00,000
Indirect
3,00,000
242691 229716 Tax
2,00,000 214369 Revenue
178447 in Rs.
1,00,000 99,068 Crores
0
2014-15 2015-16 2016-17 2017-18 2018-19
Figure 5 Revenue through Central Excise Duty on Fuel vs. Indirect Taxes
Source: PPAC, Ministry of Petroleum
Analyzing the chart above, we observe the indirect tax collections increasing by folds in
between 2014-15 and 2015-16 where we see a gain of Rs.1, 65, 053 crores and Rs. 1, 51, 800
crores respectively in the mentioned 2014-16 period. The following three periods of 2017,18
and 19 see lower growth of indirect taxes as compared to the 2014-16 time period. Even though
the growth was low, there have been increments year on year from 2016 -17 onwards. Rs.
44,028 crores in 2017-18 and Rs. 25, 726 crores the following year of 2018-19. Shifting our
focus from the Indirect taxes to the collection of Excise duty from petroleum, we observe a
substantial rise in Excise collections between the periods of 2014-16. A significant gain of Rs.
79,379 crores in 2014-15 and Rs. 64,244 crores in 2015-16 prove the increase in revenues for
the government. The following years of 2017-18 and 19 see a nominal dip in excise duty
collections due to government revising and decreasing excise duty during the mentioned period.
We see a nominal dip of Rs. 12, 975 crores in 2017-18 and Rs. 15, 347 in 2018-19.
http://www.iaeme.com/IJM/index.asp 164 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
This year due to the ongoing pandemic in 2020 and the substantial increase in Excise duty,
the Central government plans to mop up a whopping Rs. 2 lakh crores as estimated by CRISIL.
As per data and information provided by PPAC of the Ministry of Petroleum , contribution of
revenue from crude oil and petroleum products were close to Rs. 2.14 lakh crores in 2018-19.
As per updates provided in the Lok Sabha on the 3rd February 2020, revenue from Excise duty
on petroleum amounted to a staggering 23% of all the indirect taxes. However, there is a
highlight which needs attention about the quantum of revenue through excise duty on petrol
was significantly higher in 2018-19 compared to 2014-15 which was Rs.0.99 lakh crores in
monetary numbers and a share of 18.9% of all indirect taxes.
5.2.2 Contribution to Exchequer (Central Government Revenue from petroleum)
Table 5
Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
(9
months)
1. Contribution to (Figure in
Exchequer Crores)
A. Tax/Duties on
Crude Oil &
Petroleum
Products
Cess on crude oil 15,869 15,409 13,082 14,514 17,741 10,259
Royalty on crude oil/ 3858 4885 4649 4747 6062 4254
Natural gas
Customs Duty 4125 6763 8799 11171 16,035 15,917
NCCD on crude oil 822 857 926 968 1180 856
Excise Duty 99,068 178477 242691 229716 214369 147975
Service Tax 2181 2837 2956 1228 340 0
IGST 9211 16479 9713
CGST 4488 7437 5003
Others 101 125 122 125 204 78
Sub Total (A) 126025 209354 273225 276168 279847 194055
B. Dividend to
Government/
Income tax etc.
Corporate/Income Tax 23,921 25,505 32,511 33,599 38,561 18,431
Dividend Income to 9197 10217 17501 14575 15525 2350
Central Government
Dividend Distribution 3500 4590 6197 5981 6415 1799
Tax
Profit Petroleum on 9422 4630 5742 5839 7694 4106
exploration of Oil/ Gas
Sub Total (B) 46040 44943 61950 59994 68194 26685
Total Contribution to 1,72,065 2,54,297 3,35,175 3,36,163 3,48,041 2,20,740
Central Exchequer
(A+B)
Source: PPAC, Ministry of Petroleum
Analyzing the table above, we see the various sources of revenue for the central government
through petroleum taxes. If we observe the figures and categories under the tax/duties earned
by the government, the primary focus would remain on
http://www.iaeme.com/IJM/index.asp 165 editor@iaeme.comIndian Petroleum Taxation Analysis
• Cess on Crude Oil
• Royalty on Crude Oil
• Customs Duty on Crude Oil
• Service Tax Collection
• Excise Duty (has been analyzed in the beginning)
• Total Tax/Duties Collection from 2014-19
• IGST & CGST (not analyzed due to introduction in 2017)
20000
18000
16000
14000
12000
Cess
10000 Royalty
Customs Duty
8000 Service Tax
6000
4000
2000
0
2014-15 2015-16 2016-17 2017-18 2018-19
Figure 6 Tax/Duties Collection By Central Government From Petroleum
Source: PPAC, Ministry of Petroleum
Analyzing the chart above we see substantial increase in Cess, Royalty and Customs Duty.
The Customs duty collection in particular grabs attention due to a significant increase in its
collection figures which have grown phenomenally.
• Cess- A marginal decrease in Cess collections is recorded year on year till 2016 but is
overshadowed by the significant increase in the preceding years of 2017 and 2018.
2015- Decrease of Rs. 460 crores in Cess collections.
2016- Decrease of Rs. 2327 crores in Cess collections.
2017- Increase of Rs. 1432 crores in Cess collections.
2018- Staggering increase of Rs. 3227 crores in Cess Collections.
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• Royalty on Crude oil- Royalty collections increase nominally along the years from
2014-16. A small dip is witnessed in the year 2016 but is overshadowed by the gains
made in 2017-19.
2015- Increase of Rs. 1027 crores in Royalty collections.
2016- Decrease of Rs. 236 crores in Royalty collections.
2017- Increase of Rs. 98 crores in Royalty collections
2018- Staggering Increase of Rs.1315 crores in Royalty collections.
• Customs Duty – Out of all the taxes levied by the central government, we get to see that
there has been a phenomenally high increase in the collections of Customs duty on
petroleum.
2015- Increase of Rs. 2638 crores in Customs duty.
2016- Increase of Rs. 2016 crores in Customs duty.
2017- Increase of Rs. 2372 crores in Customs duty.
2018- Staggering increase of Rs. 4864 crores in Customs duty.
• Service Tax – This tax levied witnesses a nominal and gradual increase year on year.
This is the only tax that experiences a decline at the end of 2017 and 2018 year on year.
2015- Increase in Rs. 656 crores in Service Tax collections.
2016- Increase in Rs. 119 crores in Service Tax collections.
2017- Staggering decrease of Rs. 1,728 crores in Service Tax collections.
2018- Staggering decrease of Rs. 888 crores in Service Tax collections.
Analyzing the second part of the table, which is the Dividend to government / Income tax
section, the following observations are made categorically.
• Corporate / Income Tax from Petroleum- There has been a steady substantial increase
year on year via the receipts in the form corporate/income tax for the central
government. The year on year rise in this segment of earning for the government is as
follows.
2015- Increase of Rs. 1584 crores in corporate/income tax earnings.
2016- Staggering increase of Rs. 7006 crores in corporate/income tax earnings.
2017- Increase of Rs. 1088 crores in corporate/ income tax earnings.
2018- Substantial increase of Rs. 4962 crores in corporate/ income tax earnings.
• Dividend income to Central Government- This category of earnings witnesses a
moderate increase in the beginning two years of 2014-16 but also sees a major spike in
the third year. The jump here in earnings is substantial but decreases again in the
subsequent two years of 2018 & 19.
2015- Increase of Rs. 1020 crores in dividend income.
2016- Staggering Increase of Rs. 7284 crores in dividend income.
2017- Decrease of Rs. 2926 crores in dividend income.
2018- Nominal increase of Rs. 950 crores in dividend income.
• Dividend Distribution Tax- A gradual increase is witnessed by a nominal fall in 2017.
2015- Increase in Rs. 1090 crores.
2016- Increase in Rs. 1606 crores.
2017- Nominal Decrease of Rs. 216 crores.
2018- Nominal Increase of Rs. 434 crores.
http://www.iaeme.com/IJM/index.asp 167 editor@iaeme.comIndian Petroleum Taxation Analysis
• Profit petroleum on exploration of Oil/Gas – This is the only category of earnings for
the government which witnesses a gradual slump in the 5 year time period.
2015- Staggering Decrease of Rs. 4792 crores
2016- Increase of Rs. 1,112 crores
2017- Nominal increase of Rs. 97 crores.
2018- Significant Increase of Rs. 1855 crores
Total Contribution to Central Exchequer
400000
350000
300000
250000
200000 Total Contribution to Central
Exchequer
150000
100000
50000
0
2014 2015 2016 2017 2018
Figure 7 Total Contribution to Central Exchequer
Source: PPAC, Ministry of Petroleum
If we observe the above chart, we clearly notice a year on year rise in the contribution by
the Petroleum industry to the Central government. Revenues, Taxes and Dividend income for
the central government have increased individually and have cumulatively contributed to the
revenue of the Government.
2014- 2015 – Staggering increase of Rs. 82, 232 crores
2015- 2016- Staggering increase of Rs. 80, 878 crores.
2016- 2017- Nominal increase of Rs. 988 crores
2017- 2018- Significant increase of Rs. 11, 878 crores.
• Percentage Increase in taxes year-on-year
(2014-2015) – Staggering Increase of 47.79% in revenues from 2014- 2015.
(2015-2016) – Staggering Increase of 31.80% in revenues from 2015- 2016.
(2016- 2017) – Nominal Increase of 0.29% in revenues from 2016-2017.
(2017-2018) – Nominal Increase of 3.53% in revenues from 2017-2018.
5.3 State Governments meeting 15% of Indirect Tax Revenues through VAT &
Sales Tax
In the previous section of this paper, a comparison of the % of fixed taxes levied by the various
state governments has been presented. This section would contain the break- up of taxes levied
on petroleum and the revenues that the states generate from taxing petroleum. The table below
would present the breakup as follows.
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5.3.1 Contribution to State Exchequer (State Government Revenue from petroleum)
Table 6
Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-
20(9
months)
1. Contribution to (Figure
State Exchequer in crores)
A. Tax/duties on
Crude &
Petroleum
Products
Royalty on Crude 14,159 7932 11942 9370 13371 9118
Oil/Natural Gas
Sales Tax/ VAT on POL 1,37,157 1,42,807 1,66,414 1,85,850 2,01,265 1,43,952
products
SGST/UTGST 4974 7961 5348
Octroi , Duties Incl. 3838 2753 3524 1663 685 512
Electricity Duty
Entry Tax / Others 5372 6622 7706 4745 4114 215
Sub Total (A) 1,60,526 1,60,114 1,89,587 2,06,601 2,27,396 1,59,144
B. Dividend to
Government/
Direct Tax etc.
Dividend Income to State 28 95 183 262 195 43
Government
Sub Total (B) 28 95 183 262 195 43
Total contribution to State 1,60,554 1,60,209 1,89,770 2,06,863 2,27,591 1,59,187
exchequer (A+B)
Total contribution of 3,32,620 4,14,506 5,24,945 5,43,026 5,75,632 3,79,927
Petroleum Industry to
Exchequer (Central +
State)
Source: PPAC, Ministry of Petroleum
http://www.iaeme.com/IJM/index.asp 169 editor@iaeme.comIndian Petroleum Taxation Analysis
16000
14000
12000 Royalty
10000 SGST/UTGST
8000 Octroi, Duties Incl. Electricity
Duty
6000 Entry Tax
4000 Dividend Income to State
Governments
2000
0
2014 2015 2016 2017 2018
Figure 8
Source: PPAC, Ministry of Petroleum
Analyzing the table above, we observe the various sources of revenues for the state
government apart from sales tax and VAT fixed %. In this section of the paper we would
analyze these different categories and list the increase as well as decrease of revenue sources
for the various state governments.
• Royalty on Crude Oil/Natural Gas- This category of taxes witnesses a slump in 2015
followed by a nominal rise in the following years.
2015- Substantial Decrease of Rs. 6227 crores in Royalty collections.
2016- Substantial Increase of Rs. 4010 crores in Royalty collections.
2017- Marginal Decrease of Rs. 2572 crores in Royalty collections.
2018- Substantial Increase of Rs. 4001 crores in Royalty collections.
• Sales tax/ Vat on POL Products- This category of taxes has been analyzed in the
previous section of this paper.
• SGST/UTGST – (Data available only for 3 month because of new introduction).
2017- Collections of Rs. 4974 crores in SGST/ UTGST .
2018- Substantial Increase of Rs. 2987 crores in SGST/UTGST collections.
2019- Collections of Rs. 5348 crores in 9 months (Data available for 9 months).
• Octroi, Duties Incl. Electricity Duty- This category of revenues for the state
governments witnesses a dip in the subsequent years.
2015- Substantial Decrease of Rs. 1085 crores.
2016- Nominal Increase of Rs. 771 crores.
2017- Substantial Decrease of Rs. 1861 crores.
2018- Nominal Decrease of Rs. 978 crores.
http://www.iaeme.com/IJM/index.asp 170 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
• Entry Tax/ Others- This category of taxes witnesses a growth from 2014 but eventually
experiences a dip from 2017.
2015- Substantial Increase of Rs. 1250 crores
2016- Substantial Increase of Rs. 1084 crores.
2017- Staggering Decrease of Rs. 2961 crores.
2018- Nominal decrease of Rs. 631 crores.
Analyzing the second part of the table, containing the dividends earned by state governments
from petroleum
• Dividend Income to State Governments – Growth in Dividend income is observed from
2014-2017. A minor dip is witnessed in 2018.
2015- Increase of Rs. 67 crores in Dividend Income.
2016- Increase of Rs. 88 crores in Dividend Income.
2017- Increase of Rs. 79 crores in Dividend income.
2018- Minor Decrease of Rs.67 crores in Dividend Income.
Total Contribution to State Exchequer
250000
200000
150000
Total Contribution to State
Exchequer
100000
50000
0
2014 2015 2016 2017 2018
Figure 9 Total Contribution to State Exchequer
Source: PPAC, Ministry of Petroleum
http://www.iaeme.com/IJM/index.asp 171 editor@iaeme.comIndian Petroleum Taxation Analysis
5.3.2 Percentage share of Central & State Governments from Total Taxes collected-
2015, 2015,
2014, 2014 2014,
State 2015 Central
State govern Govern
Central ment, ment,
Govern Govern
ment, 160209, 254297,
ment,
160554, 39% 61%
172065,
48% 52%
Central Central
Government Government
State State
Government government
Revenue for Central Govt -52 % Revenue for Central Govt - 61%
Revenue for State Govt - 48% Revenue for State Govt - 39%
2016 2017
State
Govern
State
ment,
Govern
206863,
ment,
38%
189770,
Central Central
36%
Government Government
State State
Government Government
Central Central
Govern Govern
ment, ment,
335175, 336163,
64% 62%
Revenue for Central Govt -64 % Revenue for Central Govt - 62%
Revenue for State Govt – 36% Revenue for State Govt - 38%
http://www.iaeme.com/IJM/index.asp 172 editor@iaeme.comNiladri S D Biswas, Prithvish Bose and Rohit Kumar Sharma
2018, 2019 (9 2019 (9
2018,
2018 Central Months), 2019 (9 Months) Months)
State Govern State Central
Govern ment, Governm Governm
ment, 348041, ent, ent
227591, 60% 159187, 220740
40% 42% 58%
Central Central
Government Government
State State
Government Government
Revenue for Central Govt -60 % Revenue for Central Govt – 58% (9M)
Revenue for State Govt – 40% Revenue for State Govt - 42% (9M)
Figure 10
6. CONCLUSION
Indirect Taxes levied on petroleum currently is excessively high and the retail consumers of
petroleum are paying a hefty price for petrol & diesel even when global crude oil is within the
$35- $45 a barrel. This excessive tax paid in turn is making petrol & diesel 70% costlier than it
should be. At a time when the economy is returning to normalcy from a lockdown, the
government should be considerate enough to tax petroleum moderately than it currently is. This
rise in petroleum cost in turn increases the price of a variety of essential products required for
survival. Heavily taxing such a huge population on petroleum can easily help government meet
a majority of its tax targets but in turn could really spin inflation to higher numbers. The
consumption of petroleum is regaining strength after the lockdown restrictions have been
removed and is expected to return to full capacity within the next quarter of 2021. The
government should pass on minimal benefits in the form of tax cuts to the middle class in
particular to keep inflation under a serious check.
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