NEW DELHI: The Centre on Wednesday slashed excise duty on petrol and diesel by Rs 5 and Rs 10 per litre respectively, a move that will offer relief to consumers by lowering pump rates and easing prices of daily staples for the common man. The duty cut will bring down petrol price by around Rs 6 a litre and diesel by around Rs 12 in Mumbai 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 the higher VAT 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.
Taking a cue, the governments of UP, Gujarat, Goa, Karnataka, Uttarakhand, Assam, Manipur, Tripura and Bihar cut VAT on fuel. BJP governs all these states, except Bihar where it is in alliance with JD(U). UP, Goa, Uttarakhand, Gujarat and Manipur are going to the polls next year. The steepest excise duty cut will reduce the opposition’s leverage against BJP over the issue of fuel taxes and price rises. It will, however, leave a hole of about Rs 60,000-65,000 crore in the tax collection in the remaining months of this fiscal.
Opposition slams govt for not fully rolling back higher levies
A higher mop-up in other taxes is expected to bridge this gap. A finance ministry 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 states, which too had raised VAT when crude prices fell, to match the Centre’s step by reducing VAT for bigger relief to consumers.
“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,” it said.
Congress and other opposition parties such as TMC, however, slammed. the government for not fully rolling back the higher levies which kicked in after the Covid outbreak in 2020. Besides, there was criticism that the Centre’s reduction in excise duty will also hit states as they have a 41.5% share in central taxes. Critics suggested that the Centre should have instead reduced the cess which is not shared with the states.
The Centre had raised 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 increased 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,” the statement said.