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High petrol prices in Karnataka - why, and where does it go?

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Economy

Petrol prices were reduced this week to adjust for rupee dollar exchange rate softening. However, back in May, our CM had promised to look into cut in cess on petrol prices, here:

His government would look into the possibilities of reducing cess on petrol after the June 11 biennial elections to the state Legislative Council. "I will look into the possibilities of reducing cess on petrol soon after the elections to the legislative council. For now, I can't comment on the issue due to model code of conduct," he told reporters.

No cuts have been announced. However, we should contimnue to ask why are prices higher in Karnataka, and what is the government giving us in return for 'extra' money collected through the high fuel prices? From Transmogrifier's post two years ago here, here is how he figured the components of petrol price in our state:

Some numbers on taxes from recent newspaper articles (Karnataka may cut local taxes) dated May 25 2012:

... said a senior minister ... If everything goes according to plan, petrol price might get cheaper by Rs 5-7 per litre, as the government is contemplating reducing VAT or removing entry tax by not less than 5%. Currently, Karnataka imposes 25% VAT on petrol and 5% entry tax, plus 1.25% vendor commission.

The reason people cite for higher prices in Karnataka is high transportation costs in the state. And, there is additional cess for Bangalore, prices here are higher than other areas of Karnataka.

I don't mind paying higher price for petrol, but I'd rather pay more towards the actual price than higher than normal taxes to the state government. If I am paying higher taxes (25%, over the regular 12-18% for other commodities), I would want to know what is being done with the extra taxes collected on this one commodity. Further, where are the accounts for the extra cess we may be paying as Bangalore residents.

 

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dvsquare's picture

@SB, any idea, how to find

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@SB,

any idea, how to find that out?

(1) Where is this extra cess and extra taxes going?

(2) What is the primary purpose of collecting this tax and cess? (Like road improvement etc ...)

(3) Does the collection serving the cause for which its being collected at the first place?

Deepak

n's picture

It appears to be sales tax

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It appears to be sales tax and not VAT (other links here and here).  The sales tax is not a trivial component of the total taxes as shown in the chart below (source http://ctax.kar.nic.in/Actwise.htm)

Here is how the rupee comes (from http://www.finance.kar.nic.in/bud2012/grrcom12e.htm)

and where it goes (from http://www.finance.kar.nic.in/bud2012/grrgo12e.htm)

There doesn't appear to be a direct correlation between higher taxes on petrol and better road facilities (say) in Bengaluru.


silkboard's picture

deepak, n

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@n, thanks for the links, lots of useful data there (ctax and finance sites).

@deepak - I remember reading somewhere that in the petrol prices, we pay a small cess towards either roads or public transport. Can't find any source to validate this. I wanted to figure how the funds built with this 'cess' are being used.

@n, so assuming it is sales tax (kst) and not vat, total KST collection was 5546 Crores. How much of this would be from KST on Petrol? Same newspaper articl has this quote:

Former minister and former chairman of the legislative council BK Chandrashekar said the entry tax of 5% and sales tax of 25% on petrol, and 18% on diesel, accounted for 6% of the state's tax revenue of around Rs 43,000 crore.

6% of 43000 Crore = 2580 Crores. BTW, that data on CTax site for 2011-2012 says total tax collection was 28000 Crores, way lower than what is quoted in this news source! Let us assume that 43000 Cr is right. Scaling up the ctax site number, total money from KSt would be ~ 8517 Crores. of which 2580 is from KST on petrol+diesel

silkboard's picture

different numbers

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@n digression from fuel prices to state tax data, but I think 28000 Cr number is for "commercial taxes". 43000 Cr is overall tax revenue. See this, here the commercial tax number for 2012-2013 is 31100 Cr. What you have above (first chart you posted) is a breakup of commercial taxes portion.

n's picture

The deccanherald article I

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The deccanherald article I linked says

After all, more than Rs 4,500 crore is anticipated from sales tax on these two commodities alone during the fiscal.

So, it is more than 2580 crores. Also, the total taxes come to much more than 43,000 crores as per chart above. So, I wouldn't give too much credence to minister's remarks carried by newspapers.

Some information on petrol cess indicates

The State Government is unlikely to reintroduce cess on petrol and diesel to raise funds for Namma Metro Phase II. The Government had levied the mass rapid transport and infrastructure cess on petrol and diesel between 1995 and 2002.
However, public raised a hue and cry and questioned why people in other regions should pay for Bangalore's infrastructure. This forced the government to withdraw the cess.
Between 1995-96 and 2001-2002, the government levied a cess of 25 paise per litre of petrol and 10 paise per litre of diesel in the State. The cess was levied for the purpose of equity investment in Infrastructure Development of Karnataka Ltd., and Bangalore Mass Transit Ltd., in the ratio of 67:33.
The government collected about Rs. 470 crore through the cess, according to sources in the Finance Department.

So, the cess shouldn't be confused with the sales tax as it is over and on top of the sales tax.  Although cess is used interchangebly for sales tax (including in the original post report), it is strictly not true.  No idea how the money was "invested".


silkboard's picture

thanks, got it, but 1.75% ?

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So there used to be a cess, which is long withdrawn. And the cess was for PT as well as infrastructure (aka roads, mostly?).

@n - very clear, sales tax is different. cess is an extra thing on top.

Referring back to Transmog's chart, assuming he got the numbers correct in there, out of the 3% 'unknown', you have 1.25% dealer commision. 1.75% still remains. Was wondering if there still is some kind of cess on top of taxes that we have forgotten about.

Sanjeev's picture

Basically Landing price for Karnataka is very high

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High Petrol Prices are contributed by the Landng Prices of Petro Products for Karnataka and  then the inland transport cost added from the farthest  point.

For Karnataka, I think Landing Price taken as Chennai and not Mangalore.

So imagine,  from Chennai to Belgaum ( 800 Kms )  transport cost added .

Even Sathya &  myself expericed when we went to Tumkur,  petro prices in Bangalore lower then  on Highway as Whitefield is receiving station by  pipe from chennai.

I think, for Delhi,  lading of Petro Products taken at Mathura.

Even if you compare the prices with other Metros other then Delhi,  its small difference of  Rs 1/2.  But in Goa  Petro prices are Rs 56/-  as they have removed all taxes on Petrol  but Diesel is higer then other parts of Country.

Same case in Chandighar,  prices in Panchakula, Mohali which are in Haryana & Punjab are higher compared to Chandighar.

Srivastava can coment on this as he is placed  their

 

Naveen's picture

Fuel Pricing

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Landing Price taken as Chennai and not Mangalore

This must have changed after MRPL came into existence, but I remember reading a news item long ago (around the time when the HPCL pipe project work began) that petrol /diesel fuel prices would be rolled back to some extent once the Mangalore-Bangalore pipeline project was completed & put in service.

However, according to this report, only 38.23% capacity was utilized in 2007-08 (The report has good description of the fuel pipeline project). So, a major part may still be coming from CPCL (erstwhile MRL).

Also, HPCL is building a Mangalore-Bangalore LPG pipeline - Source.

cess was for PT as well as infrastructure (aka roads, mostly?)

The cess was for "infrastructure".

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