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In the past few months, retail prices of petrol and diesel have consistently increased and have reached all-time high levels.  On September 24, 2018, the retail price of petrol in Delhi was Rs 82.72/litre, and that of diesel was Rs 74.02/litre.  In Mumbai, these prices were even higher at Rs 90.08/litre and Rs 78.58/litre, respectively.

The difference in retail prices in the two cities is because of the different tax rates levied by the respective state governments on the same products.  This blog post explains the major tax components in the price structure of petrol and diesel and how tax rates vary across states.  It also analyses the shift in the taxation of these products, its effect on retail prices, and the consequent revenue generated by the central and state governments.

What are the components of the price structure of petrol and diesel?

Retail prices of petrol and diesel in India are revised by oil companies on a daily basis, according to changes in the price of global crude oil.  However, the price paid by oil companies makes up 51% of the retail price in case of petrol, and 61% in the case of diesel (Table 1).  The break-up of retail prices of petrol and diesel in Delhi, as on September 24, 2018, shows that over 45% of the retail price of petrol comprises central and states taxes.  In the case of diesel, this is close to 36%.

At present, the central government has the power to tax the production of petroleum products, while states have the power to tax their sale.  The central government levies an excise duty of Rs 19.5/litre on petrol and Rs 15.3/litre on diesel.  These make up 24% and 21% of the retail prices of petrol and diesel, respectively.

Table 1

While excise duty rates are uniform across the country, states levy sales tax/value added tax (VAT), the rates of which differ across states.  The figure below shows the different tax rates levied by states on petrol and diesel, which results in their varying retail prices across the country.  For instance, the tax rates levied by states on petrol ranges from 17% in Goa to 39% in Maharashtra.

Effective Sales Tax

Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product.  This implies that while the excise duty component of the price structure is fixed, the sales tax component is charged as a proportion of the price paid by oil companies, which in turn depends on the global crude oil price.  With the recent increase in the global prices, and subsequently the retail prices, some states such as Rajasthan, Andhra Pradesh, West Bengal, and Karnataka have announced tax rate cuts.

How have retail prices in India changed vis-à-vis the global crude oil price?

India’s dependence on imports for consumption of petroleum products has increased over the years.  For instance, in 1998-99, net imports were 69% of the total consumption, which increased to 93% in 2017-18.  Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products.  The following figures show the trend in price of global crude oil and retail price of petrol and diesel in India, over the last six years.

Petrol

Diesel

The global price of crude oil (Indian basket) decreased from USD 112/barrel in September 2012 to USD 28/barrel in January 2016.  Though the global price dropped by 75% during this period, retail prices of petrol and diesel in India decreased only by 13% and 5%, respectively.  This disparity in decrease of global and Indian retail prices was because of increase in taxes levied on petrol and diesel, which nullified the benefit of the sharp decline in the global price.  Between October 2014and June 2016, the excise duty on petrol increased from Rs 11.02/litre to Rs 21.48/litre.  In the same period, the excise duty on diesel increased from Rs 5.11/litre to Rs 17.33/litre.

Over the years, the central government has used taxes to prevent sharp fluctuations in the retail price of diesel and petrol.  For instance, in the past, when global crude oil price has increased, duties have been cut.  Since January 2016, the global crude oil price has increased by 158% from USD 28/barrel to USD 73/barrel in August 2018.  However, during this period, excise duty has been reduced only once by Rs 2/litre in October 2017.  While the central government has not signalled any excise duty cut so far, it remains to be seen if any rate cut will happen in case the global crude oil price rises further.  With US economic sanctions on Iran coming into effect on November 4, 2018, India may face a shortfall in supply since Iran is India’s third largest oil supplier.  Moreover, Organization of Petroleum Exporting Countries (OPEC) and Russia have not indicated any increase in supply from their side yet to offset the possible effect of sanctions.  As a result, in a scenario with no tax rate cut, this could increase the retail prices of petrol and diesel even further.

How has the revenue generated from taxing petroleum products changed over the years?

As a result of successive increases in excise duty between November 2014 and January 2016, the year-on-year growth rate of excise duty collections increased from 27% in 2014-15 to 80% in 2015-16.  In comparison, the growth rate of sales tax collections was 6% in 2014-15 and 4% in 2015-16.  The figure below shows the tax collections from the levy of excise duty and sales tax on petroleum products.  From 2011-12 to 2017-18, excise duty and sales tax collections grew annually at a rate of 22% and 11%, respectively.

Tax revenue

How is this revenue shared between centre and states?

Though central taxes are levied by the centre, it gets only 58% of the revenue from the levy of these taxes.  The rest 42% is devolved to the states as per the recommendations of the 14th Finance Commission.  However, excise duty levied on petrol and diesel consists of two broad components – (i) excise duty component, and (ii) road and infrastructure cess.  Of this, only the revenue generated from the excise duty component is devolved to states.  Revenue generated by the centre from any cess is not devolved to states.

The cess component was increased by Rs 2/litre to Rs 8/litre in the Union Budget 2018-19.  However, this was done by reducing the excise duty component by the same amount, so as to keep the overall rate the same.  Essentially this provision shifted the revenue of Rs 2/litre of petrol and diesel from states’ divisible pool of taxes to the cess revenue, which is entirely with the centre.  This cess revenue is earmarked for financing infrastructure projects.

At present, of the Rs 19.5/litre excise duty levied on petrol, Rs 11.5/litre is the duty component, and Rs 8/litre is the cess component.  Therefore, accounting for 42% share of states in the duty component, centre effectively gets a revenue of Rs 14.7/litre, while states get Rs 4.8/litre.  Similarly, excise duty of Rs 15.3/litre levied on diesel consists of a cess component of Rs 8/litre.  Thus, excise duty on diesel effectively generates revenue of Rs 12.2/litre for the centre and Rs 3.1/litre for states.

The Juvenile Justice (Care and Protection of Children) Bill, 2015 is currently pending in Rajya Sabha and was listed for passage in the current Winter session of Parliament.  The Bill was passed by Lok Sabha after incorporating certain amendments, in May 2015.  Here is all you need to know about the Bill and key issues associated with it.  A PRS analysis of the statistics on incidence of crimes by children and conviction rates is available here.

Table 1: Juveniles between 16-18 years apprehended under IPC  
Crime

2003

2013

Burglary

1,160

2,117

Rape

293

1,388

Kidnapping/abduction

156

933

Robbery

165

880

Murder

328

845

Other offences

11,839

19,641

Total

13,941

25,804

Note: Other offences include cheating, rioting, etc.  Sources: Juveniles in conflict with law, Crime in India 2013, National Crime Records Bureau; PRS.  

Who is a juvenile as recognised by law? In the Indian context, a juvenile or child is any person who is below the age of 18 years.  However, the Indian Penal Code specifies that a child cannot be charged for any crime until he has attained seven years of age. Why is there a need for a new Bill when a juvenile justice law already exists? The government introduced the Juvenile Justice Bill in August 2014 in Lok Sabha and gave various reasons to justify the need for a new law.  It said that the existing Juvenile Justice Act, 2000 was facing implementation issues and procedural delays with regard to adoption, etc.  Additionally, the government cited National Crime Records Bureau (NCRB) data to say that there has been an increase in crimes committed by juveniles, especially by those in the 16-18 years age group. NCRB data shows that the percentage of juvenile crimes, when seen in proportion to total crimes, has increased from 1% in 2003 to 1.2% in 2013.  During the same period, 16-18 year olds accused of crimes as a percentage of all juveniles accused of crimes increased from 54% to 66%.  However, the type of crimes committed by 16-18 year olds can be seen in table 1. What is the new Bill doing? Currently, the Juvenile Justice (Care and Protection of Children) Act, 2000 provides the framework to deal with children who are in conflict with law and children in need of care and protection.  The Bill seeks to replace the existing 2000 Act and lays down the procedures to deal with both categories of children.  It highlights the two main bodies that will deal with these children, to be set up in each district: Juvenile Justice Boards (JJBs) and Child Welfare Committees (CWCs).  It provides details regarding adoption processes and penalties applicable under the law.  The Bill provides for children between 16-18 years to be tried as adults for heinous crimes.  The three types of offences defined by the Bill are: (i) a heinous offence is an offence that attracts a minimum penalty of seven years imprisonment under any existing law, (ii) a serious offence is one that gets imprisonment between three to seven years and, (iii) a petty offence is penalized with up to three years imprisonment. Currently, how is a juvenile in conflict with law treated? How is that set to change? Under the 2000 Act, any child in conflict with law, regardless of the type of offence committed, may spend a maximum of three years in institutional care (special home, etc.)  The child cannot be given any penalty higher than three years, nor be tried as an adult and be sent to an adult jail.  The proposed Bill treats all children under the age of 18 years in a similar way, except for one departure.  It states that any 16-18 year old who commits a heinous offence may be tried as an adult.  The JJB shall assess the child’s mental and physical capacity, ability to understand consequences of the offence, etc.  On the basis of this assessment, a Children’s Court will determine whether the child is fit to be tried as an adult. What did the Standing Committee examining the Bill observe? One of the reasons cited for the introduction of the Bill is a spike in juvenile crime, as depicted by NCRB data.  The Standing Committee on Human Resource Development examining the Bill stated that NCRB data was misleading as it was based on FIRs and not actual convictions.  It also observed that the Bill violates some constitutional provisions and said that the approach towards juvenile offenders should be reformative and rehabilitative. The Bill as introduced posed certain constitutional violations to Article 14, 20(1) and 21.  These have been addressed by deletion of the relevant clause, at the time of passing the Bill in Lok Sabha. What does the United Nations Convention on the Rights of the Child (UNCRC) say? What are the obligations on the signatory nations? The UNCRC was ratified by India in 1992 and the 2000 Act was consequently brought in to adhere to the standards set by the Convention.  The proposed Bill maintains this aim and seeks to improve implementation and procedural delays experienced by the 2000 Act.  The UNCRC states that signatory countries should treat every child under the age of 18 years in the same manner and not try them as adults.  While the 2000 Act complies with this requirement, the Bill does not.  However, many other countries who have also ratified the Convention try juveniles as adults, in case of certain crimes.  These countries include the UK, France, Germany, etc.  The United States is not a signatory to the UNCRC and also treats juveniles as adults in case of certain crimes. Under the Bill, what happens to a child who is found to be orphaned, abandoned or surrendered? The Bill addresses children in need of care and protection.  When a child is found to be orphaned, abandoned or surrendered he is brought before a Child Welfare Committee within 24 hours.  A social investigation report is conducted for the child, and the Committee decides to either send the child to a children’s home or any other facility it deems fit, or to declare the child to be free for adoption or foster care.  The Bill outlines the eligibility criteria for prospective parents.  It also details procedures for adoption, and introduces a provision for inter-country adoption, so that prospective parents living outside the country can adopt a child in India. Currently, the Guidelines Governing Adoption, 2015 under the 2000 Act, regulates adoptions.  Model Foster Care Guidelines have also recently been released by the Ministry of Women and Child Development. What are the penalties for committing offences against children? Various penalties for committing offences against children are laid out in the Bill.  These include penalties for giving a child an intoxicating substance, selling or buying the child, cruelty against a child, etc. Issue to consider: The penalty for giving a child an intoxicating or narcotic substance is an imprisonment of seven years and a fine of up to one lakh rupees.  Comparatively, buying or selling a child will attract a penalty including imprisonment of five years and a fine of one lakh rupees. It remains to be seen if the Bill will be taken up for consideration in this session, and if its passage will address the issues surrounding children in conflict with the law.