1 Rising fuel tax rates contributing to higher excise duty collection

After most indirect taxes were subsumed into the Goods and Services Tax (GST) post 2017, the bulk of union excise duties are receipts from taxes on petroleum products, primarily petrol and diesel. In 2021-22, the reason for a sharp jump in union excise duty collections is not a spike in consumption of petrol-diesel but an increase in tax rates. As oil prices fell, the government chose to keep retail prices of fuel roughly constant, and enhanced excise duties – a move that shored up revenue receipts.

However, the use of these duties on petrol and diesel to boost revenue receipts might come at the cost of higher inflation in the economy as oil prices strengthen, provided the government does not cut excise levies. But doing so may hit revenue receipts. Here are four charts which explain this trade-off.