Diesel costlier than petrol in Delhi due to VAT increase by state govt: IOC

New Delhi, Jun 24 (PTI) Diesel price for the first time in living memory crossing the rate of petrol in the national capital on Wednesday was a result of a steep hike in VAT by the state government, Indian Oil Corp (IOC) Chairman Sanjiv Singh said, pointing to lower rates across other cities.

According to a price notification of state oil marketing companies, petrol price was unchanged after 17 consecutive increases, while diesel rates were hiked by 48 paise per litre, the 18th daily increase in a row across the country.

Diesel now costs Rs 79.88 per litre in Delhi as compared to petrol price of Rs 79.76.

Rates differ from state to state depending on the incidence of VAT.

However, diesel is costlier than petrol only in the national capital where the state government had raised local sales tax or VAT on the fuel sharply last month.

'The Delhi government had increased VAT on petrol from 27 per cent to 30 per cent and that on diesel from 16.75 per cent to 30 per cent on May 5,' Singh told reporters here.

This massive hike in VAT resulted in rates going up by Rs 1.67 per litre for petrol and by a record Rs 7.10 for diesel on a single day.

Singh said diesel in all other cities is priced lower than petrol -- the difference between the two being as high as Rs 9.50 per litre in Pune and over Rs 3.50 in most state capitals and major cities.

State-owned fuel firms benchmark retail rates to Arab-Gulf international oil prices and a formula decides them, he said, adding demand dropped drastically in the aftermath of lockdowns imposed across the globe to curb spread of coronavirus, sending oil prices plunging to multi-year low. This included oil futures falling below zero on one day in US trading.

Reducing prices in line with that fall was not 'sustainable' as cracks -- the difference between crude oil (raw material) and petroleum product (finished goods) prices -- were running negative, he said.

IOC, the nation's largest fuel retailer, and other state-owned firms Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) too held the rates for volatility to end.

Singh said the companies returned to revising rates after international markets stabilised. This included passing on the excise duty increase.

'While we had negative cracks (margins), individual states raised VAT and central excise was also hiked,' he said. 'Even if oil prices are to stabilise, it is quite likely that prices may still rise.' Diesel in Delhi is the second most costliest in the country. It costs Rs 80.68 in Rajasthan but even there the difference between diesel and petrol is Rs 6.17 per litre.

Petrol costs Rs 86.54 a litre in Mumbai and diesel is priced at Rs 78.22. In Chennai, a litre of petrol comes for Rs 83.04 and diesel for Rs 77.17. In Kolkata, petrol is priced at Rs 81.45 per litre and diesel costs Rs 75.06. In Bengaluru, petrol comes for Rs 82.35 a litre and diesel for Rs 75.96. In Hyderabad, petrol is priced at Rs 82.79 a litre and diesel at Rs 78.06.

Traditionally, diesel was priced Rs 18-20 a litre lower than petrol due to lesser taxation. But over the years, the taxes have increased, narrowing the gap.

The 18th daily increase in rates since oil companies on June 7 restarted revising prices in line with costs after ending an 82-day hiatus in rate revision, has taken diesel prices to fresh highs. In 18 days, diesel price has gone up by Rs 10.49 per litre. Petrol price has risen by Rs 8.5 a litre in the past 17 days.

Taxes make up for nearly two-thirds of the retail selling price. As much as Rs 50.69 per litre, or 64 per cent, in petrol price is due to taxes -- Rs 32.98 is the central excise duty and Rs 17.71 is local sales tax or VAT. Over 63 per cent of the retail selling price of diesel is taxes.

Out of the total tax incidence of Rs 49.43 per litre, Rs 31.83 is by way of central excise and Rs 17.60 is VAT.  The 82-day freeze in rates this year was imposed in mid-March soon after the government hiked excise duty on petrol and diesel to shore up additional finances.

The government on March 14 hiked excise duty on petrol and diesel by Rs 3 per litre each and then again on May 5 by a record Rs 10 per litre in case of petrol and Rs 13 on diesel. The two hikes gave the government Rs 2 lakh crore in additional tax revenues.

Oil PSUs IOC, BPCL and HPCL instead of passing on the excise duty hikes to customers adjusted them against the fall in the retail rates that was warranted because of a fall in international oil prices to two-decade lows. International oil prices have since rebounded and oil firms are now adjusting retail rates in line with them. PTI ANZ ABM ABM