Frequent hikes in excise duty which have occured five times in a year, has caused the amount of taxes to exceed the total cost of production of petrol/diesel in India.

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The government has hiked prices of both petrol and diesel 5 times over the past year

The government has been increasing excise duty on fuel constantly, with the most recent hike being on 7th November where excise duty of petrol was increased by Rs. 1.60/- per litre and by 40 paise on diesel. The basic excise duty of unbranded or normal petrol was hiked from Rs. 5.46/- per litre to Rs. 7.06/- per litre, while basic excise duty for unbranded or normal diesel was hiked from Rs. 4.26/- per litre to Rs. 4.66/- per litre according to a CBEC notification.

After including special or additional excise duty on both, the total levy for petrol will be Rs. 19.06/- per litre from Rs. 17.46 per litre, while total levy for diesel will be Rs. 10.66/- per litre from Rs. 10.06/- per litre. The government had collected Rs. 99,184 crores in excise collection from the fuel sector in 2014-15 of which Rs. 33,042 crores was from the first quarter of the current fiscal.

The government has hiked the excise rates of both petrol and diesel four times between November 2014 to January 2015 itself. This rise in excise duty compensates for fall in reduction rates caused due to falling international oil prices. The four installments of excise duty hike occurred on 12th November 2014 with both petrol and diesel prices hiked by Rs. 1.25/- per litre each, 2nd December 2014 with petrol prices hiked by Rs. 2.25/- per litre and diesel by Re. 1/- per litre, while on 2nd January 2015 and 16th January 2015, the prices were raised by Rs. 2/- per litre for both petrol and diesel.

Putting all this into perspective we can calculate –

Breakdown of petrol cost in Delhi

Cost of production of petrol = Rs. 24.75/-
Price at petrol pump after adding company margin = Rs. 27.24/-
Excise duty (Rs. 19.06/-) + dealer commission (Rs. 2.26/-) + VAT (Rs. 12.14/-) = Rs. 33.46/-
Hence, price of petrol = Rs. 60.70/- per litre

Breakdown of diesel cost in Delhi

Cost of production of diesel = Rs. 24.86/-
Price at petrol pump after adding company margin = Rs. 27.05/-
Excise duty (Rs. 10.66/-) + dealer commission (Rs. 1.43/-) + VAT (Rs. 6.79/-) = Rs. 18.88/-
Hence, price of diesel = Rs. 45.93/- per litre

The above price of fuel is for Delhi, which is amongst the cheapest in the country. Fuel price is higher in most other states due to the higher taxes levied on fuel. With crude price being at its lowest currently, fuel price is quite high in India, so when crude prices rise again, if the excise duty is kept the same, then fuelling our vehicles is going to cost a lot in our country.

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Frequent hike in excise duty has seen the tax amount on fuel exceed the cost of its production