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On Rs 26.7/litre, you pay tax of Rs 44, here's how: Daily revision of petrol price explained

With the Centre refusing to step in to resolve the fuel price issue, there's nothing much that the common man can do.

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Are indirect taxes responsible for the steep fuel price rise?
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The highest fuel prices in three years have triggered a nationwide debate whether the decision of daily revision of prices is in the favour of consumers or not.

However, with Tuesday's price where in Delhi, the petrol was at Rs 70.38 per litre and in Mumbai , where it went up to as high as Rs 79.48 for a litre, there is nothing much left to say whose at the losing side.

The middle-class consumer, whose budget has already gone haywire, is looking up to the government in hope of some relief. But with ministers like, Alphons Kannanthanam who thinks that "whoever owns a vehicle and can afford to pay, will have to pay", the freedom from constant pressure on the pocket seems like a far-fetched dream.

The Petroleum Minister, Dharmendra Pradhan, also recently ruled out any government intervention blaming various reasons. He took to Twitter to even justify the hike and backed it with relevant data. Here's what he tweeted.

The minister in the past also advocated the fact that a consensus should be made between the state governments to bring the petroleum products under the ambit of the Goods and Services Tax Bill. At present, the prices of petroleum products are being regulated by the respective state governments.

But how did we reach at this situation, are indirect taxes to be blamed? A simple comparison will help us to find the answer. Three years ago, on May 26, 2014, the prices of crude oil and refining cost were Rs 44.8 for one litre. However, after the Oil Marketing Companies (OMC) margin of Rs 3.2, excise duty of Rs 9.5, dealer's commission of Rs 2.0 and a value added tax of Rs 11.9, the price of petrol reached up to Rs 71.4 in New Delhi.

Now, let's take a look at the current scenario, on Tuesday, the petrol in the National Capital was sold off for Rs 70.38. The price of the crude oil was then for a litre was Rs 26.7. Now, with the same taxes as mentioned above, the OMC was Rs 4.1, excise duty of Rs 21.5, dealer's commission of Rs 3.2 and VAT of Rs 15, the total price was settled for Rs 70.4-highest in three years.

In simpler words, on Rs 26.7, the consumers are paying approximately Rs 44 only as a tax.

Is daily price revision acting as a slow poison? Experts believe, the rise did not happen overnight. The fuel prices have been constantly rising but did not come under notice because of the daily price mechanism, which came into effect from June 16. Since the roll out of the new method, the prices have been rising between 2 paise to 7 paise. Previously, the prices were revised on the 1st and 16th of every month, which could not be ignored in the news headlines. But as the daily revision has been rolled out, it usually does not come in everybody's attention.

The irony here is that the mentioned mechanism of regulating petrol price everyday was introduced with a motive of bringing transparency in the pricing process.

Indian household budget going haywire:

With an obvious drawback of added pressure on the pockets, the rise in prices is fuelling the inflation numbers also.

Many experts believe that the August wholesale inflation of 3.4%, which has been the highest in four months, has increased oil prices as one of the major contributing factors. The high inflation rate would definitely enter in other sectors also.

What next?

As the Union Minister Dharmendra Pradhan had ruled out any possibility of going back to the previous mechanism of regulating the fuel price and urged state and the Union governments to work together to bring petroleum products under GST, the onus is now on Arun Jaitley and his state counterparts to make a call.

FM Arun Jaitley previously had said that due to the state government's disagreement, petrol had been kept out of the GST ambit.

Meanwhile, here's how the dynamic fuel price works: The state-run fuel retailers, Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum revise prices based on international price and currency exchange rate.

Also now, the petrol pumps follow a system of marginal differentiated pricing; under which, outlets of same OMC at various locations sell fuel at different prices. For example, a petrol pump nearer to supplier station may have a lower price than the one farther away. The price revision happens at 6 in the morning everyday.

How to check the regulated price:

Customers who want to know about the regulated prices can know it via by sending SMS or by logging in Indian oil mobile app, Fuel@IOC . Via SMS: Customers can type RSP<SOACE>DEALER CODEand send it to 92249-92249. or can download the app Fuel@IOC, the app displays both the diesel and petrol prices as well.

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