Something about the price of petrol doesn't add up, Pg10

Key Highlights:

• India's ethanol blending rate in petrol has increased from 1.5% in 2013-14 to 20% by 2025-26.
• Ethanol attracts 5% GST, while petrol is taxed through central excise and state-level VAT.
• The weighted average procurement cost of ethanol was Rs 71.32 per litre in 2024-25.
• The base price of petrol charged to dealers was Rs 53.07 per litre (excluding excise, VAT, and commission).
• The current retail selling price of petrol in Delhi is Rs 94.77 per litre.
• There is no published price build-up for ethanol-blended petrol (E20).

Detailed Insights:

• The current fuel taxation regime is partially reformed, leading to a dual structure where oil marketing companies pay GST on ethanol but cannot claim input tax credit.
• The absence of a separate price build-up for blended petrol hides important fiscal information and prevents a clear evaluation of the costs and benefits of blending.
• Ethanol blended into petrol is exempt from central excise duty, but state-level VAT applies to the entire blended fuel.
• Publishing a detailed price build-up for blended petrol, including the ethanol share, procurement cost, and tax treatment, would enhance accountability.
• Greater transparency in fuel pricing would improve fiscal coordination between the Centre and states.
• The lack of clarity on the contribution of each component to the final price distorts fiscal understanding, as ethanol now constitutes one-fifth of every litre sold.

Key Concepts Involved:

• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services.
• VAT (Value Added Tax): A tax on the value added at each stage of production or distribution.
• Excise Duty: A tax levied on the manufacture, sale, or consumption of goods within a country.