Karnataka Tax Hike Raises Fuel Prices: Detailed Analysis and Impact
On June 16, 2024, the Karnataka state government announced a significant increase in the sales tax on petrol and diesel, leading to a sharp rise in fuel prices across the state. The sales tax on petrol was raised from 25.92% to 29.84%, and on diesel from 14.3% to 18.4%. As a result, petrol prices in Bengaluru jumped by approximately ₹3 per litre to ₹102.84, up from ₹99.84. Similarly, diesel prices increased by ₹3.02 per litre, now costing ₹88.95, up from ₹85.93.
This tax hike was implemented by the Congress-led Karnataka government under Chief Minister Siddaramaiah. The primary reason cited for this increase was to generate additional revenue for the state. Despite the increase, Siddaramaiah emphasized that Karnataka’s fuel taxes remain lower than those in several neighboring states and similar economy-sized states like Maharashtra. For instance, the VAT on petrol in Maharashtra stands at 25%, plus an additional tax of ₹5.12, and the VAT on diesel is 21%. Siddaramaiah argued that even with the recent hikes, Karnataka’s fuel prices are still lower than those in Gujarat and Madhya Pradesh.
The Chief Minister defended the tax increase amidst criticism from the opposition BJP, which announced plans for statewide protests. Siddaramaiah accused the previous BJP government of reducing state taxes on fuel while the central government increased its own, leading to reduced revenue for Karnataka. He claimed that this manipulation allowed the central government to collect more taxes at the expense of the state’s financial health. The Siddaramaiah administration has called on the central government to reduce its taxes to provide relief to the public.
The fuel price hike is expected to have widespread implications across various sectors, especially transportation and goods distribution. Higher fuel costs typically lead to increased costs for transportation, which can then be passed on to consumers in the form of higher prices for goods and services. This ripple effect could contribute to inflationary pressures in the state’s economy.
In the broader context of India, fuel prices vary significantly across different states due to varying state taxes. As of June 16, 2024, the price of petrol in Delhi stands at ₹94.72 per litre, and diesel is ₹87.62 per litre. In Mumbai, petrol costs ₹104.21 per litre, while diesel is priced at ₹92.15 per litre. Chennai sees petrol at ₹100.75 per litre and diesel at ₹92.34 per litre. In Kolkata, petrol is ₹103.94 per litre, and diesel is ₹90.76 per litre. Other notable prices include Trivandrum with petrol at ₹107.62 per litre and diesel at ₹96.49 per litre, and Hyderabad with petrol at ₹107.41 per litre and diesel at ₹95.65 per litre. In Jaipur, petrol is ₹104.88 per litre and diesel is ₹90.36 per litre, while Bhubaneswar has petrol at ₹101.06 per litre and diesel at ₹92.64 per litre.
Fuel prices in India are revised by state-run oil marketing companies (OMCs) based on international crude oil prices and the rupee-dollar exchange rate. The major players in this sector include Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL). These companies refine crude oil into various products and have the responsibility of adjusting retail prices in accordance with global market conditions. IOC, for instance, operates 10 oil refineries with a combined capacity of 80.6 million tonnes and owns 36,285 petrol pumps across the country.
The recent tax hike in Karnataka underscores the delicate balance that state governments must maintain between generating revenue and managing the economic impact on consumers. While the increased revenue is intended to support state finances, the higher cost of fuel can burden consumers and businesses alike, potentially leading to broader economic repercussions. As the situation evolves, it will be crucial for policymakers to monitor the impact of these changes and consider measures to mitigate any adverse effects on the economy. For ongoing updates and detailed analyses, staying informed through reliable news sources like the Mint News App can provide valuable insights into the ever-changing landscape of fuel prices and economic policies.