How Rising Oil Prices are Making the Government Richer

Fuel prices have been on the rise for the last three weeks with some cities even seeing fuel trade at Rs.90 per litre as a result. But, do you know why this happens and how the government is getting richer due to the rising fuel prices? Here’s an overview.

The Indian rupee has continuously depreciated against the US dollar – falling by as much as 14% in the last month alone and add to this the government has been increasing the duty on fuel repeatedly over the last few months.

To begin with, India doesn’t import any petrol or diesel, what it imports is crude and the price you pay for fuel is based on the import price parity or it is basically the price you pay if you import petrol or diesel into the country.

India has more export than import

India imports almost negligible amount of petrol or diesel into the country. In 2017 – 18, the country imported Rs.744 million worth of fuel, while we exported fuel worth Rs.23,858 million.

Despite this, people are priced the amount that it would actually cost if it is imported into the country. Oil Refineries are paid the Refinery Gate Price (RGP), which is based on the Trade Parity Price (TPP) which is basically an average of the Import Parity Price (IPP) and Export Parity Price (EPP).

IPP is the prices that is paid if a product is imported and it includes freight charges, customs duty, insurance, and port charges. EPP on the other hand is what is paid when the fuel is exported. IPP and EPP have an 80% and a 20% weightage respectively.

Rise in Excise Duty

Over the last three- four years, the government has increased customs duty and excise duty. While customs duty forms a small chunk of the amount, the majority of the revenue the government generates comes from the excise duty.

Since the November of 2014 to the January of 2016, the government has increased excise duty by 9 times while cutting it only once in October 2017.

While duty on petrol rose from 2.7% to 9.48%, the same on diesel went up from 2.96% to 11.33%. In the January of 2016, the government increased duty 3 times, which caused total petrol and diesel prices to rise by Rs.17 a litre for petrol and Rs.19 a litre for diesel respectively.

Apart from this, the government taxed the oil refineries and the more profits they got the higher tax the government collected. On the other hand, the state-run refineries, if gathered profits, money would again reach the government in the form of dividends as the government is the majority investor. All in all, it looks as though the government is increasing its revenue collection by taxing all the parties involved in a fuel trade.

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Deepti here and I work as a freelancer, Blogger and specialise in compiling blog posts on the topics related to financial products like Credit Score, Credit Report, CIBIL Score, CIBIL Report, Equifax, Fuel Resource such as Petrol and Diesel and so on.

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