Rising fuel prices boost Karnataka coffers by Rs 2,000 crore

• Posted in OilGas
• on January 19, 2021
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Increasing fuel prices have helped the state government earn additional revenue of nearly Rs 2,000 crore in the past four months, even though consumption has remained moderate. The government mopped up Rs 6,314 crore between September 2020 and mid-January 2021, Rs 1,896 crore more than the figure of the corresponding period in 2019-20.

While daily consumption of petrol has reached pre-Covid levels of 20,000 kilolitres, that of diesel is only about 70 per cent of the average recorded before the pandemic. “This shows that additional revenue came from increasing fuel prices,” said KM Basave Gowda, president, Akhila Karnataka Federation of Petroleum Traders.

Rising fuel prices boost Karnataka coffers by Rs 2,000 crore
After the latest price hike of 25 paise per litre on Monday, fuel rates have hit their highest level in Karnataka since October 2018. Petrol is sold at Rs 87.7 per litre and diesel at Rs 79.6 per litre.

The state’s revenue comes from sales tax, which is ad valorem in nature. Basically, the tax is levied on the sum of the base fuel price and central excise duty (CED). The quantum of the state’s revenue from fuel sales automatically increases when there’s a hike in the base price or CED. Going by Monday rates, the government earned sales tax of Rs 21.8 per litre of petrol, which is 35 per cent of the sum of the base price (Rs 29.3) and CED (Rs 32.9). For diesel, it is Rs 14.9, which is 24 per cent of the sum of the base price (Rs 30.3) and CED (Rs 14.9).

In April 2020, crude oil prices, which drive the base rate, hit a low of $19 per barrel. The Centre still hiked CED by Rs 10 for both types of fuel, which helped the state get a steady flow of revenue despite low consumption. Karnataka also increased sales tax by Rs 1.6 per litre.

The base rate, which remained stagnant until September, started to increase as crude oil prices climbed. Crude oil prices have touched $49 per barrel. BT Manohar, chairman (taxation committee), FKCCI, said: “While the state is benefiting from the ad valorem taxes, the price consumers are paying is inflationary. In the interest of industries and the general public, the government must reduce taxes.”

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