Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Petrol: What are we paying for? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 12, 2007

    Petrol: What are we paying for?

    Petroleum products have strongly pervaded our daily lives, more so diesel and petrol. We know that the oil marketing companies are losing money on the sales of these products due to high crude oil prices internationally. But have we ever thought about the break-up of the price we pay for these fuels. In this write-up, we have made an attempt to identify the different components of the price of petrol and throw some light on each of them.

    Petrol/ Motor spirit is the fuel used for transportation purposes. We all use it to run our cars, motor cycles etc. Every time we run out of petrol, we get the tank refilled at the prevailing prices. We have never thought about what are we paying for. But do you know the basic cost forms less than half of the selling price and the rest is accounted for by taxes.

    While people in Delhi have to pay roughly Rs 44.9 (current price for unbranded petrol), the actual cost or the basic cost amounts to around Rs 22, while excise duties, sales tax and custom duties account for remaining Rs 16, Rs 6 and Rs 0.9 respectively.

    Break-up of the selling price of the petrol*
    Particulars % of selling prices
    Basic cost excluding Taxes 48
    Excise duty 35
    Sales Tax 15
    Custom Duty 2
    Total 100
    * On the basis of prices in Delhi.

    The basic cost components of the price are crude oil prices, processing costs and margins of refineries. Excise duty is levied on the processing of crude into its various derivates. Sales tax is the taxes levied by various states on the end price. It is a major component due to which prices of the petroleum products differ across states. Price of petrol in Mumbai is higher compared to that in Delhi due to the same reason.

    Excise duty as % of selling prices…
    Year Excise duty
    on petrol ( Rs)
    Selling prices
    ( year end)
    Excise as % of
    selling prices
    FY00 5.99 25.94 23.1%
    FY01 5.32 28.75 18.5%
    FY02 8.02 27.54 29.1%
    FY03 10.96 33.49 32.7%
    FY04 11.79 33.71 35.0%
    FY05 12.27 37.84 32.4%
    FY06 14.81 43.49 34.1%
    FY07( upto Nov. 2006) 15.11 44.85 33.7%
    * On the basis of prices in Delhi.

    Currently, the excise duty on petrol is a mixture of fixed and advalorem duty. While the advalorem duty is 8%, the fixed component is Rs 13 per litre. This is considerably higher and as a consequence, the excise duty from petroleum products form roughly 45% of the total excise collection of the government. It should be pertinent to add that excise duty collections have grown at the lowest rate amongst the top five taxes levied by government, presumably on the back of higher evasion rates. Thus, excise duty on petroleum products is unlikely to be lowered much as this would lead to the government's finances being further stretched.

    Thus, we expect the excise duty on petrol and diesel to be reduced marginally in the forthcoming budget. Therefore, the same is not going to have significant impact and if crude prices stay high for long, subsidies will continue to hurt the profitability of the OMCs.



    Equitymaster requests your view! Post a comment on "Petrol: What are we paying for?". Click here!


    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    Jan 24, 2017

    Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    Dec 3, 2016

    GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)