The central government on Saturday raised the excise duty on petrol and diesel by Rs 3 a litre in an attempt to plug its revenue shortfall. The price of the auto fuels will, however, remain almost the same as the global price of crude has been on a downswing for some time.
Special additional excise duty on petrol was hiked by Rs 2 to Rs 8 per litre and to Rs 4 in case of diesel, an official notification said. Besides, road cess on petrol was raised by Rs 1 per litre each on petrol and diesel to Rs 10.
Crude import prices for India, which buys from a variety of sources, stood at an average of $ 32.32 a barrel this week as against an average price of $ 69.88 a barrel in 2018-19. However, the price of a litre of petrol in Delhi stands at Rs 70 a litre compared to Rs 70.14 earlier this week and Rs 72.55 a year ago.
Top finance ministry officials said the excess mop-up which would be near Rs 2,000 crore for the rest of this month and about Rs 40,000 crore in a full year, would be used “partly to offset the lower revenue collections on account of a slowdown in the economy and in months ahead on an expenditure drive next year to counteract the impact of the coronavirus, which is expected to be disruptive for the economy.”
Besides lower GST and corporate tax collections, the finance ministry expects a huge hole in their receipts budget on account of disinvestment decisions which may have to be postponed given the current stock market crash.
More than half of the price of a litre of petrol is accounted for taxes which include excise and customs duty which go to the Centre and VAT which goes to the Centre. Central revenue collections from the petroleum sector stood at Rs 2.79 lakh crore of which excise alone contributed to Rs 2.14 lakh crore in 2018-19, according to the Petroleum Planning and Analysis Cell.
Crude prices have been falling partly because of lower demand for commodities on account of a general slowdown caused by the coronavirus crisis and partly because of a price war unleashed between Saudi Arabia led Opec and Russia which is unwilling to agree to Opec’s diktats on capping production.
Madan Sabnavis, chief economist at Care Ratings, had said earlier this week, “It has been noticed in the past that the government does not pass through the impact of the soft crude prices completely to the consumer and will continue to benefit with the oil tax revenues as a whole.”
Analysts say this trend is not only true for the current government but also for previous governments. Governments have, however, cut taxes or passed on lower prices on the eve of crucial elections, they point out.