There are lot of discussion taking place at various places like News channel, debates, social media etc. that “Crude oil price has reduced by 50% but petrol price has not decreased much”. Many people doesn’t know how price of petrol or diesel is being determined and what re the tax on petrol. In this blog we will discuss break up of petrol price in India.
We all know that, India imports around 80% of Crude oil. Petrol is derived from processing of crude oil in oil refinery and then supplied to petrol pump for selling. At various stages, taxes also adds up. Now my objective is bifurcate price of petrol into its constituents. Lets start.
Breakup of Petrol price and Diesel price in India
Now lets look how various cost adds up. Break up of petrol price is described in detail in video
Cost of Crude oil:
Crude oil is the raw material for making petrol, diesel, LPG and many other petroleum products
- Current crude oil price is around 55$/barrel.
- But this is international crude oil price. But crude oil is delivered through sea through fright. Fright cost around 1.5$/ltr. So crude oil price at out port is 56.5$/ltr
- This price translates to 24.95 Rs/ltr
Cost of refining, transportation and logistics:
To extract petrol from crude oil, some procession has to be done. This procession are done at oil refinery. There are cost involved in transpiration of crude oil from port to oil refinery, cost of refining which includes cost of manpower, energy consumed in process, storage and logistics, profit etc. All this cost adds up.
- For petrol this cost is it is 7.16 Rs/ltr and for Diesel it is Rs 11.74 Rs/ltr
- The basic cost of fuel after refining is 32.11 Rs/ltr (Petrol) and 36.69 Rs/ltr (Diesel)
Excise Duty and Road Cess:
Excise Duty + Road Cess are charged by government. Diesel are taxed at a lower rate compared to petrol.
- This cost is Rs 17.98/ltr (Petrol) and Rs. 13.83/ltr (Diesel)
- Price charged to petrol pump dealer before vat is Rs 50.49/ltr (Petrol) and Rs 50.89/ltr (Diesel)
Commission of dealer:
Petrol pump dealer has done investment for making petrol pump. They also employ workers for distribution and they do all this expecting profit. So dealer has to charge some commission.
- Commission is Rs 3.57/ltr (Petrol) and Rs 2.53/ltr (Diesel)
- Hence cost of fuel before VAT (Value added tax) is Rs 54.06/ltr (Petrol) and Rs 53.42/ltr
Value Added Tax or VAT on Fuel:
Government charges tax on sale of petrol and diesel. This tax varies with state to state and is the reason for variation in petrol price. In Delhi it is around 27% on sale of petrol and 16.75% + 25 paise as pollution Cess with surcharge on Diesel.
- In monetary terms, VAT and other tax described above is Rs 14.59/ltr (Petrol) and Rs. 9.24/ltr (Diesel)
After all this charges, the final price of petrol is Rs 68.65/ltr and Rs: 62.66/ltr
Total Tax on petrol
Out of the total price of petrol, if we see total VAT on petrol is Rs 14.59/ltr, excise duty and road cess accounts for 17.98. This means total tax on petrol adds up to around Rs 32.57/ltr. This means out of total cost of petrol i.e. Rs 68.65/ltr, 47.45% is Tax. Yes you heard it right , 47.45% price of petrol goes as tax. Similar value for diesel is around 37%.
If I add up this cost, only Rs 24.95/ltr is cost of crude oil while other cost which involves procession of crude oil, transportation, taxes and profit of OMC and distributor is remaining Rs 43.7/ltr for petrol and Rs 37.77 /ltr for diesel. That means only 36% of petrol price and 40% of diesel price is crude oil price. So of crude oil price reduces to half, then petrol price will not reduce to half, because crude oil price forms only part of petrol price.