Why fuel price wouldn’t go down further in Kerala

Jose Sebastian, former faculty,

Gulati Institute of Finance and Taxation

, explains how the fuel price is calculated and its impact on state’s revenue

Kerala imposes its taxes on the combined figure of the underlying fuel prices and the Union government’s cess or excise duty. The landing price of fuel in Kerala thus already includes the central government’s duty or cess. Hence, a cut in fuel price by the Centre will result in two factors – a reduced price for the consumer and a decline in the state’s revenue Just for illustration, the price of petrol worth Rs 1,000 will attract a state sales tax of 30%, which is Rs

300. Thus, petrol worth Rs 1,000 will cost Rs 1,300 when it reaches the consumer. And when the central government brings down the price of petrol from Rs 1,000 to Rs 900, the state tax imposed on it will be 30% of Rs 900, which is Rs 270. Hence the final price will be Rs 1,170 when that quantity of petrol reaches the consumer.

The finance minister’

s claim

that the petroleum prices have been slashed at the state level is wrong. The only slashing done was by the central government and the state has only transferred that benefit to the customers. The Union government, meanwhile, had suggested that in order to bring down the prices further, the states could reduce their own taxes from the current level of 30% to 27.5%.

The Kerala finance minister is not willing to do this as it will affect the finances of the state.