CENTRE TO GET `1.6L CR FROM RECORD EXCISE DUTY HIKE ON PETROL, DIESEL

The current hike has pushed total incidence of taxation on auto fuels to 70 per cent of the price

NEW DELHI: The Union government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record hike in excise duty on petrol and diesel that has pushed total incidence of taxation on auto fuels to 70 per cent of the price.

Late on Tuesday evening, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low. Petrol price remained unchanged at Rs 71.26 a litre and diesel at Rs 69.39 as state-owned oil firms set off the excise duty hike against gains they accrued from fall in international oil rates.

This is the second hike in excise duty in less than two months and will help the government garner over Rs 1.7 lakh crore in additional revenues annually at 2019-20 level of consumption, industry officials said.

Considering the slump in consumption due to travel restrictions imposed by coronavirus lockdown, the gains in the remaining 11 months of the current fiscal year (April 2020 to March 2021) will be close to Rs 1.6 lakh crore, they said.

Together with Rs 39,000 crore in annual revenues gained from the March 14 excise duty hike of Rs 3 per litre each on petrol and diesel, the government stands to gain as much as Rs 2 lakh crore.

After the excise duty hike, taxes - both central excise and state VAT) - make up for 70 per cent of the price of petrol and diesel. A litre of petrol costs only Rs 18.28 per litre in Delhi but after including excise duty (Rs 32.98), dealer commission (Rs 3.56) and VAT (Rs 16.44) the price for consumer comes to Rs 71.26 a litre.

Similarly, a litre of diesel costs only Rs 18.78 but after including excise duty (Rs 31.83), dealer commission (Rs 2.52) and VAT (Rs 16.26), it is priced at Rs 69.39 for consumers.

State-owned fuel retailing companies, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) had frozen petrol and diesel prices since March 16, anticipating the government move and will now set off gains they accrued from the continuing drop in international oil prices against the excise duty hike.

ICICI Securities said the excise duty hike would mean a plunge in gross auto fuel marketing margin by 64 per cent (Rs 12.1 a litre) from Rs 19 on May 5 to Rs 6.9 on May 6.

Emkay Global said oil marketing companies (OMC) have continued to pass on numerous VAT rate hikes implemented on petrol and diesel by states, but as gross margins touched a high of over Rs 18/20 on Tuesday, the excise hikes are most likely to be absorbed.

“The overall price freeze has now crossed 45 days. OMC officials have stated unrealistic global prices to be the reason behind this, but looking at the 60 per cent estimated drop in auto-fuel consumption, the 6-7x jump in marketing margin from normative rate implies more than making up for the volume hit,” it said.

Officials said normally retail prices would have changed with any revision in taxes but like March 14, there is no change as the excise duty hike is being adjusted against the gains consumers should have got from Brent crude oil dipping to about $18 per barrel - the lowest since 1999.

Commenting on the excise duty hike, Vikas Halan, Senior Vice President, Corporate Finance, Moody’s Investors Service, said: “Government of India’s increase in petrol and diesel taxes by $21/barrel and $27/ barrel respectively will result in government’s tax collection increasing by about $21 billion if the tax hike is maintained for the full year.

According to a notification issued by the Central Board of Indirect Taxes and Customs, special additional excise duty on petrol has been hiked by Rs 2 per litre and road cess has been hiked by Rs 8 a litre. In case of diesel, special additional excise duty has been hiked by Rs 5 per litre and road cess has

been raised by Rs 8 a litre.

With this, the total incidence of excise duty on petrol has risen to Rs 32.98 per litre

and that on diesel to Rs 31.83. Petrol costs Rs 71.26 a litre in Delhi and a litre of diesel comes for Rs 69.39.