Centre Hikes Excise Duty on Petrol by ₹10/L and Diesel by ₹13/L

Crude Oil

KOLKATA: On Tuesday, the Indian Government raised the excise duty in petrol by ₹10 per litre. Meanwhile the duty on diesel was increased by ₹13 per litre. This change will come into effect from  6 May, an official notification announced.  this move aims to recoup some of the revenue losses that the Government is currently reeling under due to the nationwide lockdown it had announced on March 25.

The Centre’s move comes a day after the Aam Aadmi Party government in Delhi increased value-added tax (VAT) on petrol and diesel to raise money to fight the coronavirus disease. This decision had increased the price of petrol by Rs 1.67 per litre to Rs 71.26 and diesel, by Rs 7.10 to Rs 69.39.

That decision was sharply criticised by the Bharatiya Janata Party and the Congress in Delhi. Outside of politics, there has been some recognition that this might be the only way for governments that are running out of money to pay employees salaries.

Two separate official notifications from the Union Finance Ministry said that additional excise duty on petrol has been raised by 8 and special additional excise duty of 2 a litre has also been levied on it to give effect to a 10 a litre increase on petrol. In the case of diesel, additional excise duty has been raised by 8 and special additional excise duty by 5.

In its statement, the government added that prices that consumers pay at fuel stations will not be affected.  Crude oil prices were already slumping globally over the last couple of months. This had come as a boon to India, which depends on imports for 85% of its energy requirements. However, the benefit had been kept by the government and oil companies to improve tax revenue and marketing margins, and was not passed on to the consumers. But, this raise comes alongside a crash in the global fuel demand on account of the coronavirus (COVID-19) pandemic which pulled crude oil prices to more than 20-year lows last month. So, this statement implies that this hike would likely be absorbed by the oil companies Indian Oil, HPCL and BPCL, instead.

The government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices. A ₹1 per litre increase in excise duty on petrol and diesel usually means an additional ₹14,500 Crore in annual revenue to the government.

In all, duty on petrol rate was hiked by ₹11.77 per litre and that on diesel by ₹13.47 a litre in those 15 months. It helped government’s excise mop up more than a double of ₹99,000 Crore from 2014-15 amounting to ₹2,42,000 Crore in 2016-17.

It had cut excise duty by ₹2 in October 2017 and by ₹1.50 a year later. But it raised excise duty by ₹2 per litre in July 2019.

Experts are saying that even though this decision was taken in order to take advantage of the falling global crude oil prices, it may not help the exchequer in raising tax revenues by much. “We do not expect the Central government to accrue a sizeable amount as excise duty revenue, given the current economic slowdown,” Care Ratings said, in a report. The slowdown has led to a sharp fall in demand for petrol and diesel as the tenacity of the lockdown imposed and when it will be lifted is still unknown, the report added.

Another major reason why the government may not earn a sizeable revenue from hiking tax is because the price of crude oil has been rising since the start of May as OPEC+’s mega production cuts deal is being implemented and once economies world-over are able to lift the lockdown, crude oil price will rise again, which could prompt the government to cut back some taxes to make retail fuel affordable. With the second revision in excise duty, the government will be able to collect around 260% taxes, (excise duty and VAT) on the base price of petrol, and 256% in the case of diesel, as of 6 May 2020, said Care Ratings.

On March 14, the Centre had raised duties on petrol and diesel to Rs 3 per litre. That hike had raised the total central levies on petrol to Rs 22.98 per litre and on diesel to Rs 18.83 per litre. The retail price of the fuel had, however, remained unchanged because of the decline in crude prices.

Since March 16, Indian oil companies have abandoned the practice of daily revision of the two fuel rates, making up for present and potential inventory losses.

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