Fuel prices have crossed the century-mark in most parts of the country, threatening to derail the nascent recovery in the economic growth which has begun after the deadly second wave of the Covid-19 pandemic started to ebb. Further, rising fuel prices are setting inflation on fire. While the surge is partly due to soaring international prices of crude oil, following disputes among oil-producing nations over the quantum of production cuts, the huge taxes, duties and surcharges levied on fuel, by both the Centre and the state governments, has made an already bad situation worse.
Of the retail price paid by the consumer, over 60 per cent is taken away by the Central and state governments by way of taxes. Both are unwilling to let go of the lucrative revenue, particularly when an economic contraction is squeezing other tax collections. The states and the Centre together earned over Rs 6.7 lakh crore in taxes from petroleum products in 2020-21. The Centre’s collections alone have jumped 300 per cent in the past six years, according to a written answer to a question in Parliament filed in March this year.
However, while some argue that high fuel taxes are a ‘carbon tax’, disincentivising the consumption of fossil fuels in favour of alternatives, the reality is that there are no alternatives at the moment and high fuel prices hurt the poor and the middle class the most. Further, as the bulk of goods in the country move by road, the knock-on effect on prices is across the board. The Centre, which takes the lion’s share of fuel taxes, must step forward to ease the burden on the common man by reducing the taxes. Going forward, the Centre and the states should agree to bring fuel and gas under the GST ambit and cap taxes at a reasonable level.