With the new rates coming into immediate effect, petrol in cities and towns of Punjab will now cost approximately Rs 72.20 a litre. Diesel price in these urban areas will be Rs 40 a litre. This sop, announced by the Punjab Chief Minister, hours before the elections to the state assembly were announced, will cost the state government Rs 100 crore.

However, the state government will compensate the municipal councils and corporations, who were collecting this octroi, by giving them this revenue from the VAT to ensure their economic viability. The state government charged 1 per cent octroi on petrol and 2 per cent on diesel.

In North India, petrol is costliest in Punjab. In fact, petrol prices in the state are second highest in the country after Karnataka. This is mainly because of the high rate of taxes levied on fuels by the state government. On petrol, Punjab charges VAT at the rate of 27.5 per cent (plus a surcharge of 10 per cent on VAT), octroi at the rate of 1 per cent and a cess of Re 1 per litre. This means that 32.75 per cent of total cost of petrol (per litre) actually goes as tax to the state government.

On diesel, the state government charges VAT at the rate of 8.8 per cent (plus a surcharge of 10 per cent), octroi at 2 per cent . With this, 11.68 per cent of the total cost of diesel (per litre) goes to the state government as tax.

Source: Chandigarh Tribune, India,  dated 24/12/2011