Explainer: Why is petrol so expensive?

Buckle up. Motorists are in for a bumping ride this Ramzan, as petroleum prices skyrocket across the country.

Every month, barring a few, the federal government has been nudging up the price of petrol making life more difficult for commenters.

Why are the prices so high?

There are some things the state can’t control when it comes to pushing up fuel prices, such as the global market. Internationally, the prices of petrol are just as eye-watering. The higher wholesale cost is driven up due to a reduction in global oil production. The Organisation of Petroleum Exporting Countries (OPEC) and its allies are cutting oil output to boost up prices. Then, there are the US sanctions on Iran and Venezuela and the unrest in Libya.

Now for the things under the state’s control. We need to understand how petrol prices are calculated. The amount Rs108.31 per litre is a sum of taxes and commissions.

There is the base price of petrol per litre. Add to that the Petroleum Development Levy (PDL), a tax collected by the central government. Till May 1, it was fixed at Rs12 per litre. (The government has yet to notify what the new amount will be).

After the PDL, there is the oil marketing companies profit of Rs2- 3 per litre, the dealer's profit, who is selling at the petrol pumps, is an estimated Rs2-2.5, import tax of one per cent, the transportation charge, which varies, and finally the General Sales Tax (GST). All these combined provide the total petrol price per litre.

Did we get your head spinning?

Now, while most of these amounts remain the same, the government has been increasing the GST more regularly to meet its revenue shortfall. Before May 1, the GST was two per cent of the total petrol price, which was increased to a whopping 12 per cent before Ramzan.

One debate in the government circles it to keep the GST fixed, since the amount is collected by the provinces, and to instead hike up the PDL, so the money goes to the federal government.

Either way, one thing is for sure, a further uptick is on the cards.