The information in this article was last updated on 27th January 2022.

The recent economic downturn contributed to a cash crunch in the government reserve. However, rising fuel prices have helped the government bridge this financial gap.

Petrol prices in Karnataka have crossed ₹100 in the last year. It is essential to understand that several components determine petrol price, and one such is the petrol tax in Karnataka.

Want to know more about petrol tax in Karnataka and other factors affecting it? If yes, keep reading.

The Central Government imposes central excise duty. However, VAT on petrol, which is imposed by individual State governments, varies with each state.

The Indian Government recently hiked the excise duty and that in other states to compensate for the financial deficit in 2020-2021 and meet other state expenses.

It registered the highest record of fiscal deficit of 9.3% of Gross Domestic Product.

Karnataka also saw an overall revenue deficit of ₹15,134 crores. Moreover, announcing a farm loan waiver scheme demanded excess revenue flow from other sources to meet this increasing budget. This directly affected the state and central government's exercise on taxation.

Take a look at factors affecting the petrol price tax in Karnataka -

1. Price of Crude Oil

A global change in crude oil’s price affects the cost of petrol and diesel in India. Factors that affect this cost of crude oil are -

• Its demand and supply
• International politics
• Future oil reserves and supply

2. Cost for Dealers

The Oil Marketing Companies distribute crude oil. It charges a price to dealers. This price also depends on factors like freight charges, refining costs, and others.

3. Dealer's Commission

The Oil Marketing Companies pay a commission to petrol pump owners. These commissions cover their income, profits and other costs. This dealer's commission affects the petrol price in Karnataka.

4. Central Excise Duty and State's Sales Tax

Excise duty is not a percentage, but the Central government sets this duty. Hence, it is not subject to fluctuations irrespective of fluctuating crude oil prices.

The sales tax or VAT varies with each state government. Factors such as crude oil prices, dealer's commission, and more decide a state government's sales tax or VAT.

5. Demand and Supply of a Fuel

An increase in the rate of purchasing automobiles increased the demand for petrol and diesel. Often the supply of crude oil falls short in the face of growing demand for petrol. This creates an imbalance in the demand and supply equilibrium. Thus, as per the laws of economics, increased demand and low supply ultimately increase the fuel price.

Additionally, crude oil is sent to the refineries for its processing. A lower number of refineries will lead to a lesser supply of fuel and its availability for sale. This will further increase its price.

6. Value of Indian Rupee Against US Dollar

The international market supplies crude oil, and this transaction is done in American Dollars. Thus, any change in the dollar's valuation affects Indian rupees. For example, if the dollar's value is high, the purchasing cost of crude oil will also be higher. It will increase the end product’s price.

The answer is yes. As already mentioned, Karnataka imposes a uniform statewide tax of 35%, as of June 2021. Therefore, individuals in all cities need to pay the same percentage of tax on prevailing petrol prices. However, the petrol prices may vary across cities, given the difference in dealer’s commissions charged.

Thus, this is all about the petrol tax in Karnataka. Remember to keep an eye on the updates as the factors affecting the petrol price keep on changing.