India: Excise duties on petrol, diesel may not be raised despite revenue pressures

• The government is not looking to raise excise duties on petrol or diesel, or to increase basic customs duty on crude despite revenue pressures, apprehensive that such a move could derail the recovery seen in some segments of the economy, a senior official said.
• “At this juncture, recovery is still fragile…There is a need to avoid shocks,” the official said, confirming there is no plan to increase duties on crude and petrol and diesel.
• Taxes on petroleum products are an important source of revenue for both the Union government and states as these taxes are discretionary and most of the products are out of the purview of goods and services tax (GST). Presently, only cooking gas, kerosene and naphtha are subject to a GST rate.
• Raising excise duty on petrol and diesel will limit the extent of price reduction that fuel retailers will be able to pass on to consumers. The low oil price regime also offers fiscal space to states to consider increasing value added tax (VAT) on auto fuels.
• The Modi administration had raised excise duty on auto fuel several times after coming to power in 2014 to raise resources for welfare schemes.
• Following the sharp rally in fuel prices, the government had in Oct 18 made a INR2.5 a litre cut in petrol and diesel prices, by lowering excise duty and asking state-run fuel retailers to take a hit of INR1 on every litre of auto fuel. But, after returning to power in 2019, the government raised taxes in the Jul 19 budget.
• In her maiden budget, finance minister Nirmala Sitharaman raised the special additional excise duty and road and infrastructure cess by INR1 a litre each on petrol and diesel.
• As per information provided by the country’s largest refiner state-run Indian Oil Corp., petrol attracts an excise duty of INR19.98 a litre in addition to the value added tax (VAT) levied by the Delhi state government of INR15.25 a litre.
• Petrol is sold to the end consumer at INR71.71 a litre in the capital. Diesel attracts an excise duty of INR15.83 a litre and VAT of INR9.48, taking the retail price to INR64.3 a litre in the capital, according to figures Indian Oil Corp. Ltd released on 9 Mar 20.

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