Cap the tax part of fuel prices at 50%

Cap the tax part of fuel prices at 50%

Retail oil prices are rising like the Covid tally and there is a valid case for rethinking the high taxes on oil products. Notably, the price of diesel has overtaken that of petrol, albeit only in the National Capital Territory, after umpteen revisions to duly factor in hardening global prices of crude. Petrol prices remain higher than diesel prices in the other metros. Nonetheless, diesel prices inching ahead of petrol is path-breaking indeed, as it puts paid to routine distortion in the pricing regime for oil products. However, we must also revisit the issue of steep ad valorem taxes and other levies on oil products generally, which, plainly, is regressive.

Now, both petrol and diesel ought to be similarly priced taking into account the economic costs of oil refining. But we have traditionally opted to price petrol almost 50% higher than diesel for questionable reasons of public policy; the pricing gap has thankfully been compressed of late. The idea that well-heeled car owners can pay much more for petrol is retrograde given that the bulk of its usage is by two-wheeler riders; the biggest sports utility vehicles (SUVs) run on diesel. The gap between petrol and diesel retail prices may have also been warranted to dissuade rampant fuel adulteration with grossly subsidised kerosene, but underpricing of the latter has been done away with lately, which is unexceptionable both for the exchequer and the environment.

The Delhi government has, since May 5, hiked the sales tax on diesel from 16.75% to 30% and that on petrol from 27% to 30%. Hence the higher diesel prices vis-à-vis petrol. Along with central excise, road cess, etc, retail taxes now add up to as much as 64% of petrol prices and 63% of diesel prices. A 50% cap on retail taxes on oil would, instead, be sensible.