India’s fuel tax rate is fifth highest in the world: EY
NEW DELHI: Taxes on petrol and diesel in India are about 66% of their rates, which is the fifthhighest after the UK, Italy, France, and Germany, an EY India report has said. Taxes on the auto fuels in Spain, Japan, Canada, and the US are lower than India, the consultancy firm added in its latest edition of Economy Watch.
“According to our estimate, the share of petroleum taxes in India in the case of petrol and diesel accounted for 66.4% and 65.8% respectively in June 2020. These rates indicate the average share for the month in Delhi which is taken as representative of the Indian situation,” it said on Thursday.
While the UK had the highest tax rates among the nine countries – 71.1% of the retail rate of petrol and 68.1% of diesel in June -- the levy was the lowest in the US at 23.1% on petrol and 23.3% on diesel, it said.
“Since retail prices of petroleum products have a potential inflationary impact through transport and energy costs, this matter needs to be carefully monitored as the fiscal year progresses,” the report said.
The Consumer Price Index (CPI) data released on July 13 recorded an inflation rate of 6.1% in June 2020.
DK Srivastava, the chief policy advisor of EY India, said that the CPI inflation rate was in excess of the prescribed upper tolerance limit of 6% in December 2019, January 2020 and February 2020 at 7.4%, 7.6% and 6.6%, indicating that the monetary policy framework has been breached in the Covid-19 period and some months preceding it.
“The Centre’s Fiscal Responsibility and Budget Management Act (FRBMA) threshold for the fiscal deficit is also likely to be breached in FY21 with the Centre’s estimated fiscal deficit at 5.6% or above of the estimated GDP [gross domestic product].
These exceptions may well be justified given the extraordinary situation created by the global pandemic,” Srivastava said.
“These also point to weaknesses in the monetary and fiscal policy frameworks since these were not designed to cope with such structural economic breaks as posed by a calamity like Covid-19,” he added.
Srivastava said as petroleum products still remain outside the Goods and Services Tax (GST), both central and state governments have been increasing the non-GST taxes on them leading to high retail prices even as global crude prices remain low.
Anupam Manur, assistant professor at the think tank Takshashila Institution, said: “While it is understandable for the government to find any means of raising taxes and revenue at this point, it is unwise to further squeeze the consumers. By imposing higher taxes on an inelastic product such as fuel, the government might get additional revenue, but at the risk of shrinking disposable income and dampening consumer expenditure, which is vital to the revival of the economy, which will ultimately lead to higher tax collection.”