The government's acquisition of land for projects has been facing protests across the country, the violence in Uttar Pradesh being only the latest. What is Land Acquisition? Land acquisition is the process by which the government forcibly acquires private property for public purpose without the consent of the land-owner. It is thus different from a land purchase, in which the sale is made by a willing seller. How is this process governed? Land Acquisition is governed by the Land Acquisition Act, 1894. The government has to follow a process of declaring the land to be acquired, notify the interested persons, and acquire the land after paying due compensation. Various state legislatures have also passed Acts that detail various aspects of the acquisition process. Land is a state subject. Why is Parliament passing a law? Though land is a state subject, "acquisition and requisitioning of property" is in the concurrent list. Both Parliament and state legislatures can make laws on this subject. Is there a new Act being proposed? The government had introduced a Bill to amend this Act in 2007. That Bill lapsed in 2009 at the time of the general elections. The government has stated its intent to re-introduce a similar Bill, but has not yet done so. What are the major changes being proposed? There are significant changes proposed in the 2007 Bill with regard to (a) the purpose for which land may be acquired; (b) the amount of compensation to be paid; (c) the process of acquisition; (d) use of the land acquired; and (e) dispute settlement mechanisms. We explain these briefly below. Purpose: Currently, land may be acquired for a range of uses such as village sites, town or rural planning, residential purposes for poor or displaced persons, planned development (education, housing, health, slum clearance), and for state corporations. Land may also be acquired for use by private companies for the above purposes or if the work "is likely to prove useful to the public". The 2007 Bill had a narrower list: (a) for strategic naval, military or air force purposes; (b) for public infrastructure projects; and (c) for any purpose useful to the general public if 70% of the land has been purchased from willing sellers through the free market. Compensation: The current Act requires market value to be paid for the land and any other property on it (buildings, trees, irrigation work etc) as well as expenses for compelling the person change place of residence or business. It explicitly prohibits taking into account the intended use of land while computing market value. The 2007 Bill requires payment of the highest of three items: the minimum value specified for stamp duty, the average of the top 50 per cent by price of land sale in the vicinity, and the average of the top 50 pc of the land purchased for the project from willing sellers. For computing recent land sale, the intended land use is to be used. Thus, agricultural land being acquired for an industrial project will be paid the price of industrial land. Process of acquisition: Several changes are proposed, including the requirement of a social impact assessment. Any project that displaces more than 400 families (200 in hilly, tribal and desert areas) will require an SIA before the acquisition is approved. Use of land acquired: The 2007 Bill requires the land acquired to be used for that purpose within five years. If this condition is not met, the land reverts to the government (it is not returned to the original land owners). If any acquired land is transferred to another entity, 80 pc of the capital gains has to be shared with the original land-owners and their legal heirs. Dispute Settlement: Currently, all disputes are resolved by civil courts, which results in delays. The 2007 Bill sets up Land Acquisition Compensation Dispute Resolution Authority at the state and national levels. These authorities will have the power of civil courts, and will adjudicate disputes related to compensation claims. Does the proposed Bill address the major issues? The Bill narrows the uses for which land may be acquired. It also changes the compensation due and links that to the market price for which land is to be used. There could be significant changes in acquisition for use by private industry. Firstly, they would have to purchase at least 70 pc of the required land from willing sellers (presumably, at fair market price). Second, the compensation amount for the remaining (upto 30 pc of land) could be significantly higher than the current method. This would be at a premium to the average paid to the willing sellers, and it would be based on intended industrial or commercial use which usually commands a higher price than agricultural land. However, the effect on acquisition for projects such as highways and railways will not be significant, as there is no benchmark for price determination for such use. This article appeared in Rediff News on May 12, 2011 and can be accessed here.
In the past few months, retail prices of petrol and diesel have consistently increased to all-time high levels. On October 16, 2021, the retail price of petrol in Delhi was Rs 105.5 per litre, and that of diesel was Rs 94.2 per litre. In Mumbai, these prices were even higher at Rs 111.7 per litre and Rs 102.5 per litre, respectively.
The difference in fuel retail prices in the two cities is due to the different tax rates levied by the respective state governments on the same products. In this blog post, we look at the tax components in the price structure of petrol and diesel, the variation in these across states, and the major changes in taxation of these products in the recent years. We also discuss changes in the retail prices over the past few years and how it compares vis-à-vis the global crude oil prices.
Taxes make up around 50% of the retail price
Public sector Oil Marketing Companies (OMCs) revise the retail prices of petrol and diesel in India on a daily basis, according to changes in the price of global crude oil. The price charged to dealers includes the base price set by OMCs and the freight price. As on October 16, 2021, the price charged to dealers makes up 42% of the retail price in the case of petrol, and 49% of the retail price in the case of diesel (Table 1).
The break-up of retail prices of petrol and diesel in Delhi (as on October 16, 2021), shows that around 54% of the retail price of petrol comprises central and states taxes. In the case of diesel, this is close to 49%. The central government taxes the production of petroleum products, while states tax their sale. The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel. These make up 31% and 34% of the current retail prices of petrol and diesel, respectively.
Table 1: Break-up of petrol and diesel retail prices in Delhi (as on October 16, 2021)
|
Component |
Petrol |
Diesel |
||
|
Rs/litre |
% of retail price |
Rs/litre |
% of retail price |
|
|
Price Charged to Dealers |
44.4 |
42% |
46.0 |
49% |
|
Excise Duty (levied by centre) |
32.9 |
31% |
31.8 |
34% |
|
Dealer Commission (average) |
3.9 |
4% |
2.6 |
3% |
|
Sales Tax/ VAT (levied by state) |
24.3 |
23% |
13.8 |
15% |
|
Retail Price |
105.5 |
100% |
94.2 |
100% |
Note: Delhi levies 30% VAT on petrol and 16.75% VAT on diesel.
Sources: Indian Oil Corporation Limited; PRS.
While excise duty rates are uniform across the country, states levy sales tax/ Value Added Tax (VAT) which varies across states. For instance, Odisha levies 32% VAT on petrol, while Uttar Pradesh levies 26.8% VAT or Rs 18.74 per litre, whichever is higher. Refer to the table 3 in annexure for sales taxes/VAT levied across the country. The figure below shows the different tax rates levied by states on petrol and diesel. In addition to the tax rates shown in the graph, many state governments, such as Tamil Nadu, also levy certain additional levies such as cess (Rs 11.5 per litre).
Figure 1: Sales tax/VAT rates levied by states on petrol and diesel (as on October 1, 2021)
Note: The rates shown for Maharashtra are averages of the rates levied in the Mumbai-Thane region and in the rest of the state. Only percentages are being shown in this graph.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
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 value of excise duty component of the price structure is fixed, the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.
Retail prices in India compared to 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 of petroleum products were 69% of the total consumption, which increased to around 95% in 2020-21. 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 two figures below show the trend in the price of global crude oil and retail prices of petrol and diesel in India, over the last nine years.
Figure 2: Trend of the global crude oil price vis-à-vis retail prices of petrol and diesel (in Delhi)
Note: Global Crude Oil Price is for the Indian basket. Petrol and diesel retail prices are for Delhi. Figures reflect average monthly price.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
Between June 2014 and October 2018, the retail selling prices did not adhere to change in global crude oil prices. The global prices fell sharply between June 2014 and January 2016, and then subsequently increased between February 2016 and October 2018. However, the retail selling prices remained stable during the entire period. This disparity in the change in global and Indian retail prices was because of the subsequent changes in taxes. For instance, central taxes were increased by Rs 11 and 13 between June 2014 and January 2016 on petrol and diesel respectively. Subsequently, taxes were decreased by four rupees between February 2016 and October 2018 for petrol and diesel. Similarly, during January-April 2020, following a sharp decline of 69% in the global crude oil prices, the central government increased the excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre, respectively in May 2020.
Sharp increase in excise duty collections
As a result of the increase in excise duty in May 2020, the excise duty collection increased sharply from Rs 2.38 lakh crore in 2019-20 to Rs 3.84 lakh crore in 2020-21. The year-on-year growth rate of excise duty collection increased from 4% in 2019-20 to 67% in 2020-21. However, sales tax collections (from petroleum products) during that period remained more or less constant (Figure 3).
Figure 3: Excise duty and sales tax/ VAT collection from petroleum products (in Rs lakh crore)
Note: The excise duty component in the figure includes cess on crude oil.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
Share of states in excise duty has decreased over the years
Though central taxes (such as excise duty) are levied by the centre, it has only 59% of the revenue from these taxes. The remaining 41% of the revenue is required to be devolved to the state governments as per the recommendations of the 15th Finance Commission. These devolved taxes are un-tied in nature, states can spend them according to their own discretion. The excise duty levied on petrol and diesel consists of two broad components: (i) tax component (i.e., basic excise duty), and (ii) cess and surcharge component. Of this, only the revenue generated from the tax component is devolved to states. Revenue generated by the centre from any cess or surcharge is not devolved to states. Currently, the Agriculture Infrastructure and Development Cess, and the Road and Infrastructure Cess are levied on the sale of petrol and diesel in addition to the surcharge.
In the Union Budget 2021-22, the Agriculture Infrastructure and Development cess on petrol and diesel was announced at Rs 2.5 per litre and Rs 4 per litre, respectively. However, simultaneously, the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same. Essentially, this provision shifted a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which is entirely with the centre. Similarly, over the last four years, the share of tax component in the excise duty has decreased by 40% in petrol and 59% in diesel (table 2). At present, majority of the excise duty levied on petrol (96%) and diesel (94%) is in the form of cess and surcharge, due to which it is entirely under the centre’s share (Table 2).
Table 2: Break up of excise duty (Rs per litre)
|
Excise duty |
Petrol |
Diesel |
||||||
|
Apr-17 |
% share of total |
Feb-21 |
% share |
Apr-17 |
% share of total |
Feb-21 |
% share |
|
|
Tax (devolved to states) |
9.48 |
44% |
1.4 |
4% |
11.33 |
65% |
1.8 |
6% |
|
Cess and surcharge (centre) |
12 |
56% |
31.5 |
96% |
6 |
35% |
30 |
94% |
|
Total |
21.48 |
100% |
32.9 |
100% |
17.33 |
100% |
31.8 |
100% |
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS
As a result, the devolution to states out of the excise duty has declined over the last four years. Even though the excise duty collections have increased sharply between 2019-20 and 2020-21, the devolved component has declined from Rs 26,464 to Rs 19,578 (revised estimate) in the same period.
Annexure
Table 3: Sales taxes/VAT rates levied on petrol and diesel across states (as on October 1, 2021)
|
State/UT |
Petrol |
Diesel |
|
Andaman & Nicobar Islands |
6% |
6% |
|
Andhra Pradesh |
31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an d Vat thereon |
22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon |
|
Arunachal Pradesh |
20% |
13% |
|
Assam |
32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre |
23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre |
|
Bihar |
26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax) |
19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax) |
|
Chandigarh |
Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher |
Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher |
|
Chhattisgarh |
25% VAT + Rs.2/litre VAT |
25% VAT + Rs.1/litre VAT |
|
Dadra and Nagar Haveli and Daman and Diu |
20% VAT |
20% VAT |
|
Delhi |
30% VAT |
Rs.250/KL air ambience charges + 16.75% VAT |
|
Goa |
27% VAT + 0.5% Green cess |
23% VAT + 0.5% Green cess |
|
Gujarat |
20.1% VAT+ 4% Cess on Town Rate & VAT |
20.2% VAT + 4 % Cess on Town Rate & VAT |
|
Haryana |
25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT |
16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT |
|
Himachal Pradesh |
25% or Rs 15.50/Litre- whichever is higher |
14% or Rs 9.00/Litre- whichever is higher |
|
Jammu & Kashmir |
24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre |
16% MST+ Rs.1.50/Litre employment cess |
|
Jharkhand |
22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr |
22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr |
|
Karnataka |
35% sales tax |
24% sales tax |
|
Kerala |
30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess |
22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess |
|
Ladakh |
24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre |
16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre |
|
Lakshadweep |
Nil |
Nil |
|
Madhya Pradesh |
33 % VAT + Rs.4.5/litre VAT+1%Cess |
23% VAT+ Rs.3/litre VAT+1% Cess |
|
Maharashtra – Mumbai, Thane , Navi Mumbai, Amravati & Aurangabad |
26% VAT+ Rs.10.12/Litre additional tax |
24% VAT+ Rs.3.00/Litre additional tax |
|
Maharashtra (Rest of State) |
25% VAT+ Rs.10.12/Litre additional tax |
21% VAT+ Rs.3.00/Litre additional tax |
|
Manipur |
32% VAT |
18% VAT |
|
Meghalaya |
20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) |
12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) |
|
Mizoram |
25% VAT |
14.5% VAT |
|
Nagaland |
25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess |
16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess |
|
Odisha |
32% VAT |
28% VAT |
|
Puducherry |
23% VAT |
17.75% VAT |
|
Punjab |
Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT |
Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT |
|
Rajasthan |
36% VAT+Rs 1500/KL road development cess |
26% VAT+ Rs.1750/KL road development cess |
|
Sikkim |
25.25% VAT+ Rs.3000/KL cess |
14.75% VAT + Rs.2500/KL cess |
|
Tamil Nadu |
13% + Rs.11.52 per litre |
11% + Rs.9.62 per litre |
|
Telangana |
35.20% VAT |
27% VAT |
|
Tripura |
25% VAT+ 3% Tripura Road Development Cess |
16.50% VAT+ 3% Tripura Road Development Cess |
|
Uttar Pradesh |
26.80% or Rs 18.74/Litre whichever is higher |
17.48% or Rs 10.41/Litre whichever is higher |
|
Uttarakhand |
25% or Rs 19 Per Ltr whichever is greater |
17.48% or Rs Rs 10.41 Per Ltr whichever is greater |
|
West Bengal |
25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax) |
17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax) |
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
