Centre to raise fuel taxes to minimise fiscal fallout

nNEW DELHI: The central government may again raise taxes on petrol and diesel by up to ~2 a litre to tap the windfall from lower international oil prices and use the additional revenue to fund initiatives against the coronavirus disease pandemic including an economic stimulus package, two officials familiar with the matter said.

India’s average crude oil purchase price, which factors in the rupee-dollar exchange rate, has dropped by ~309 per barrel since March 16, but state-run fuel retailers have suspended the daily price revision based on swings in global crude prices — an indication that the government may intervene and raise excise duty again, the officials said on condition of anonymity.

The National Democratic Alliance (NDA) government raised excise duty on the two fuels on March 14 by ~3 a litre. A ~1 per litre hike in excuse duty would mean an additional ~14,500 crore of revenue to the exchequer a year. Petrol is now sold at ~69.59 per litre and diesel at ~62.29 in Delhi.

The proposed excise duty increase is strategic, the officials said. It will help the government raise funds to meet the immediate requirements arising from the coronavirus pandemic and also act as a cushion against any future price surge in the volatile international oil market. On such occasions, the government often reduces excise duty to provide relief to consumers.

The price of the Indian basket of crude oil plunged to ~1,963.13 per barrel on Thursday from ~2,272.08 a barrel on March 16, and that definitely gives scope to oil marketing companies (OMCS) to reduce pump prices of the two fuels, one of the officials said. “Surprisingly, OMCS are not revising the fuel rates daily,” he said.

“Prices of petrol and diesel are freed from government regulation and ideally it should change every day in tandem with international rates, but it is not happening despite international oil prices being on the decline. It seems either companies are profiteering or government is planning to raise taxes again,” a Meerut-based dealer and member of the Empowering Petroleum Dealers Foundation (EPDF), Hemant Sirohi, said.

The finance ministry, the petroleum ministry and staterun oil marketing companies did not respond to queries rated to fuel price revision and taxation matters.

When the government raised excise duty on auto fuels earlier this month, OMCS cut the price of petrol by 13 paise per litre and that of diesel by 16 paise per litre — albeit a minute fraction of the increase in tax. A government official had described the increase in excise duty on fuel, taxes on which make up one-third of retail prices, as a “measure of fiscal prudence”.

The hike would provide extra resources to fund infrastructure and other development projects at a time when government finances are tight, the official said on condition of anonymity. The central levies on petrol add up to ~22.98 per litre and on diesel to ~18.83 per litre.

A research report released by State Bank of India (SBI) said the government was expected to limit the decline in retail prices of fuel and increase the excise duty again. “We thus strongly recommend that the increased excise revenue from oil should not be used for bridging the fiscal gap and pleasing the markets; rather sound economics demands it must be used as a fiscal package for income support,” the report released on Thursday said.