REMOVAL OF TAXES ON OIL- A SOLUTION?

Petrol prices are just going up north. The petroleum industry is not able to manage itself and is constantly in red. Government is not permitting these companies to raise its prices to minimise its losses.  The industry- hit by high crude prices, depreciating rupee thereby escalating import payments, inflation, political constraints, policy paralysis and taxes has not helped the cause.

Taxes form major part of the oil prices. Taxes levied are Excise duty, octroi, state vat and so on. Excise duty of Rs 14.78 is levied on a litre of petrol. 20% vat is charged on oil. Also entry tax varies from state to state. Eg: UP levies 5% entry tax. They are forced to pay huge amount of tax without availing the benefit of credit on taxes. So these amounts are passed on the common man. We end up paying nearly Rs22-25 on taxes. One third of prices paid by us are taxes on petroleum.

Taxes which we pay adds to the government exchequer. But again the tax amounts are not effectively utilised by the government. (Refer earlier article- why should I pay taxes) Some of the amount collected as taxes is returned to the PSUs in form of subsidies. With ever increasing prices, PSUs just cannot get out of the red zone.

What is the solution we have in front of us? If taxes are removed for a short term period on oil, it would turnaround the company. Even if the global crude prices increase, it will not impact the ultimate common man. At the same time, it will help the PSUs recover their losses and show profits, if possible. Again, PSUs will use the funds in a better way compared to the government. It will also enable the investors take informed decision as some of these companies are listed on stock exchange.  Government will not be required to infuse capital and bail them out from being a sick company.

So by following rotational policy on taxes on petroleum, it will be a win-win situation for everyone, be it the common man, company, government, banks and so on. But the government will not let the taxes go as it is one of the major sources of income for them from this industry. But they need to analyse the present situation and take such a move. There will be demand from people to lower the prices. But considering all aspects, it will solve huge number of issues for the government such as inflation, growth, subsidy and so on.