The duty cut would bring down petrol price by about Rs 6.07 a litre and diesel by Rs 11.16 in Delhi, the benchmark market, from Thursday, assuming retailers don’t raise the base price.
The reduction will vary in other states in accordance with the level of VAT levied. States with higher VAT such as Maharashtra and Rajasthan will see a slightly higher reduction in pump prices. The higher passthrough is because of an incremental decrease in state levy as VAT is charged after excise duty and dealer commission.
The steepest excise duty cut comes ahead of the politically crucial UP assembly election and will reduce the Opposition’s leverage against the ruling BJP over the issue of fuel taxes and price rise. It will, however, leave a whole of about Rs 60,000-65,000 crore in the government’s tax collection in the remaining months of the fiscal. Higher mop up in other taxes is expected to bridge this gap.
A government statement said the higher excise duty reduction on diesel, the main fuel for the farm and transport sectors, will help farmers in the upcoming Rabi season. It appealed to the states, which too had raised VAT when crude prices fell, to match the Centre’s step by reducing VAT for bigger relief to consumers.
“The Indian farmers have, through their hard work, kept the economic growth momentum going even during the lockdown phase and the massive reduction in excise on diesel will come as a boost to the farmers during the upcoming Rabi season,” said.
The Centre had raised the excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May last year when oil prices collapsed due to the pandemic. The two hikes had raised excise duty by 65% on petrol from Rs 19.98 to Rs 32.98 a litre and 79% on diesel from Rs 15.83 to Rs 28.35.
The increased excise duty swelled the Centre’s fuel tax collection by 88% in 2020-21 to more than Rs 3 lakh crore in spite of lower sales amid the pandemic. Duty collection from diesel alone had jumped 108% due to higher tax.
As crude prices started rising in recent months, the high taxes amplified the impact and pushed up pump prices to record levels. Petrol price is currently ruling above Rs 100 a litre in almost across the country and diesel selling for as much in states with high VAT and hovering near the century mark in almost all states.
The record pump prices have been exerting inflationary pressure, the statement said. “The world has also seen shortages and increased prices of all forms of energy. The Government of India has made efforts to ensure that there is no energy shortage in the country and that commodities such as petrol and diesel are available adequately to meet our requirements.”
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