Finance Ministry not in favour of slashing excise duty on petrol, diesel

Petrol prices hit a 55-month high in the national capital today at Rs 74.50 per litre, while diesel rates reached Rs 65.75 but the finance ministry is not in favour of cutting excise duty, as mentioned by a senior official on Monday. Ironically, the BJP-led government that also rules 21 states, wants the states to cut sales tax or Value Added Tax (VAT) on fuel.

The finance ministry official said that reduction in excise duty is not advisable if the government wants to stick to the path of reducing budgetary deficit. “Excise duty cut would be a political call, but is not advisable if we have to stick to the fiscal deficit glide path outlined in Budget,” he said.

“Every rupee cut of excise on fuel will result in a loss of Rs 13,000 crore to the government,” the official said, adding that the oil ministry has not yet officially asked for a cut in fuel excise duty. It must be mentioned that the government wants to reduce fiscal deficit to 3.3% of the GDP in the current fiscal from 3.5% of the last fiscal.

Instead of reducing excise duty, the states should cut VAT on fuel the official mentioned. “Fiscal considerations are far higher than one or two rupee price impact on consumers. One or two rupee increase doesn’t impact inflation,” the official further added.

The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT varies from state to state. In Delhi, VAT on petrol is Rs 15.84 and Rs 9.68 a litre on diesel.

While the government is hoping that geopolitical tension would ease and US shale oil would help ease oil prices, it is not in favour of tinkering with the autonomy given to oil PSUs to revise rates daily in line with the cost. “Once we have decided on daily price revision, it is not a good thing to tinker with that either through excise or by asking oil marketing companies to absorb prices,” the official said.

India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half of the pump rates.

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT, but just four of them – Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh – reduced rates while others including BJP-ruled ones ignored the call.

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

(With PTI inputs)

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