Finance ministry may cut taxes on petrol, diesel

The finance ministry is considering cutting excise duties on petrol and diesel to cushion the impact of record high domestic prices, three government officials close to the discussions said. A doubling in the price of crude oil over the past 10 months has contributed to record fuel prices at gas stations in India. But taxes and duties account for roughly 60 per cent of the retail price of petrol and diesel in the country, the world’s third biggest consumer of crude oil.

The finance ministry is considering cutting excise duties on petrol and diesel to cushion the impact of record high domestic prices, three government officials close to the discussions said. A doubling in the price of crude oil over the past 10 months has contributed to record fuel prices at gas stations in India. But taxes and duties account for roughly 60 per cent of the retail price of petrol and diesel in the country, which is the third biggest consumer of crude oil.

As the coronavirus pandemic hit economic activity, Prime Minister Narendra Modi's government twice raised taxes on petrol and diesel in the last 12 months to boost sagging tax revenues instead of passing on the benefits of low oil prices last year to consumers.

The finance ministry has now started consultations with some states, oil companies and the oil ministry to find the most effective way to lower the tax burden on consumers without federal finances taking a big hit, the sources said.

“We are discussing ways in which prices can be kept stable.”

“We will be able to take a view of the issue by mid-march,” said one of the sources. The sources, who asked not to be named as the deliberations are private, said the government wants oil prices to

stabilise before cutting taxes, as it does not want to be forced to change the tax structure again, should crude prices rise further. Finance Minister Nirmala Sitharaman recently said: “I can't say when we will reduce taxes on fuel, but (the) centre and states have to talk to

reduce fuel taxes”. The Finance Ministry and oil ministry did not respond to an email requesting comment.

The high fuel prices have prompted some Indian states to cut state-level taxes on petrol and diesel to rein in prices.