Revenue from taxes on petroleum products, crude petroleum and natural gas constitutes significant share in major indirect tax collection of the Union as well as State governments. The revenue share of petroleum taxes for the Union government has gone up whereas for the state governments it has gone down since 2010-11. Understanding revenue stream from petroleum taxes could help governments in better public finance management. The importance of revenue from petroleum sector has increased after the introduction of Goods and Services Tax (GST) in India, as fiscal autonomy of the governments (both federal as well as provincial) to augment tax collection through unilateral policy changes has been curtailed with harmonisation of the tax system. Revenue mobilisation from petroleum taxes is dependent on consumption (sales) of petroleum products and therefore understanding consumption of petroleum products is important to improve our understanding on revenue potential from petroleum sector. The objective of this paper is to estimate the petroleum consumption function (or demand function) and revenue (tax collection) function of petroleum sector for the period 2001-02 to 2016-17. Based on the estimated demand and revenue functions, we project the petroleum demand and tax collection from petroleum taxes for the period 2017-18 to 2024-25. 

 

Key Words: petroleum products consumption; demand estimations; projections; petroleum taxes, revenue mobilisation, econometric models; India