The petrol tax cut in Goa, far from being a populist measure, is a brilliant move to plug revenue leakage caused by smuggling petrol into Goa and by adulteration of petrol with kerosene; and the first step to improving transport services.
Let us assume that somebody in your apartment block is stealing electricity from your meter. What do you do? Do you get your family to work harder to pay the bill, while letting the theft increase? Or do you stop the theft and then pass the benefits on to your family?
Government budgets are much like this. The more they steal from us, the higher the taxes go. That was the assumed logic, till Manohar Parrikar came along in Goa and turned things on their heads by opting to stop the theft.
This is the simplest way to explain the cutback in state taxes on petrol in Goa to disbelieving friends and family members. But we get ahead of our story.
Look carefully at the Goa state budget. Once you’ve swallowed the grand surprise of the almost 20% drop in petrol prices, you can start looking at the other interesting and game-changing aspects. Here is a one link to the main points:
The mainstream media is making out the reduction in state taxes on petrol to be some sort of populist measure. But it really goes much deeper: it has to do with the larger issue of energy security, tax evasion, fossil fuel smuggling and blocking revenue losses. At the same time, it works towards larger social benefits in a state where every segment of society depends on two-wheelers which consume petrol. Please also try to understand which coterie controls the liquid fuel business in and around the west coast of India, particularly the Konkan area.
To put matters into better perspective, we have to fully accept that a large percentage of the petrol sold in India is adulterated with kerosene. Add the unspoken truth that petrol is being smuggled into retail outlets especially in and around the west coast of India through two major routes—by ship to shore through smaller barges; and by diversion from domestic refineries.
Given this state of affairs, the tax collected on the end product at the retail outlets was simply not reaching the Governments. Do the math—if even half the petrol sold by a filling station was “off the books” because it was adulterated or smuggled and the tax was still collected from the consumer, that pretty much explains why petrol pump dealers who never tire of complaining about low commissions will not simply shut shop and change their line of business.
By one estimate, about twice as much “grey market petrol” was sold from filling stations in and around the coastal areas of the Konkan belt than “legit petrol”; the tax collected on the whole amount went into the coffers of the fuel mafia.
How much better does it get? Collect tax from consumers and don’t pass it on to the government. Whether it was the small operator selling ‘petrol’ on the roadside by the bottle, or by barrels moved on bullock carts or small trucks, or the politically connected dealer, it was a total scam. With one swift move, the Parrikar government destroyed that scam and then got into the business of plugging other leakages in the system.
Hidden in the same budget proposals are other small nuggets which have already become game changers. Some examples:
Goa, the mother-lode Goa. Selling fresh and to a local clientele, the concept of reusable bottles and paper or other bio-degradable packaging gives them a chance to come back.
Those of us who knew Goa in the seventies and earlier will understand better what this means in terms of reviving local businesses. It was becoming difficult to score a decent “poi” lately, and of the cottage level soft-drink industry, there was not a trace.
He organised huge subsidies for local people using buses, subsidised travel by bus for religious centres, and has also been generous in handing out permits for taxis which cost Rs14 a kilometre. And now, with petrol down by 20%, these will hopefully all come together, along with buses brought in under JNNURM, to give Goa the public transport it is missing.
The list goes on. Much of it is not understood by people sitting in their ivory towers in faraway cities. But there is a common theme throughout—identify the leakage and the theft, block it, use some amount of perception managing skills to sell the solution, and thereby reduce taxes. This is not Utopian. This is being done and can be done on an all-India scale if the powers that be choose to. Just the sections on public transport initiatives in Goa, for example, are a pleasure to analyse.
Taking this forward on a national level appears to be a logical next step; and not just for reducing state taxes on petrol elsewhere, but also plugging leakages and reducing theft.
The question is—who will bell the cat, especially the one wearing plastic and selling soft drinks as well as packaged fast food?
(Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love—writing.)
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Oil companies are due to review fuel prices on Saturday. IOC, BPCL and HPCL use fortnightly average of benchmark oil price and exchange rate to fix the price to be paid to refineries on 1st and 16th of every month
New Delhi: State-owned oil firms are pushing for at least Rs3 per litre hike in petrol price from 1st April to cover part of the spike in cost of raw material, reports PTI.
“We are losing Rs6.43 per litre on petrol and after adding 20% sales tax, the desired increase in rates in Delhi is Rs7.72 per litre,” a senior oil company official said.
“We understand that it will be difficult to raise rates by Rs7.72 per litre in one go but a Rs3 or even Rs4 a litre increase is feasible,” he said.
As per the practice, oil companies are due to review fuel prices on Saturday. Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) use fortnightly average of benchmark oil price and exchange rate to fix the price to be paid to refineries on 1st and 16th of every month.
If the changes do not reflect in retail selling price, they become losses in the books of oil firms.
The international price of gasoline (against which domestic petrol prices are benchmarked) have risen from $109 a barrel at the time of last revision in December 2011 to $133-$134 per barrel.
Oil firms had last revised dates on 1st December when rates were cut by Rs0.78 per litre. Petrol at IOC pumps in Delhi is currently priced at Rs65.64 per litre and the rates vary by a couple of paise at the pumps of BPCL and HPCL.
Petrol price was freed from government control in June 2010 but public sector companies continue to informally consult their parent oil ministry before taking a decision.
“We are holding consultations,” the official said, dropping hints that oil firms have so far not received a go ahead from the government for raising prices.
Oil firms lost about Rs4,500 crore this fiscal on selling petrol below cost. The government does not compensate them for this loss as petrol is a decontrolled commodity.
The government continues to control rates of diesel, domestic LPG and kerosene which were sold way below cost to keep inflation under check. The oil firms lose Rs14.73 per litre on diesel, Rs30.10 a litre on kerosene and Rs439.50 per 14.2-kg LPG cylinder.
The government makes up roughly half of the cost that retailers lose on selling diesel, domestic LPG and kerosene below cost.
IOC, BPCL and HPCL together are projected to lose about Rs140,000 crore this fiscal on selling diesel, domestic LPG and kerosene.