Impacts of Fuel Price Reduction in Indian Economy | Civil Service Malayalam

What Makes Up Retail Fuel Prices?

• The retail price of gasoline and diesel is primarily made up of three components:
• Base price (reflecting cost of international oil)
• Central Excise Duty
• State Tax (VAT)
• Central and state taxes form a major chunk of the price of petrol and diesel in India.
• Excise duty is constant for all over India, state taxes (sales tax and value added tax) vary depending upon the rates levied by different state governments.
• These taxes make fuel even more costly for consumers.

What do the government's earnings from fuel prices look like? 

• Fuel duty and VAT are significant sources of revenue for both the Centre and the states.
• According to the Budgets 2020-21, excise duty on fuel accounts for approximately 18.4 percent of the Centre's gross tax revenues.

What are the State's Constraints in Reducing Fuel Taxes?

• Major Revenue Source: Petroleum and liquor make up about a third of state tax revenue
• Pandemic Effects: The economic downturn and the pandemic had resulted in increased spending and lower revenue.