CHENNAI: Union Finance Minister Nirmala Sitharaman has cited the financial burden arising from the oil bonds issued by the previous UPA government as a reason why fuel taxes continue to remain high. However, a look at the numbers shows that the Union government has collected far more in central fuel levies between fiscal years 2014-15 and 2020-21 than both the interest payments on the bonds made so far and upcoming payment obligations.
The Union government’s excise duties on fuel began to be hiked after global crude oil prices crashed from over $110 a barrel in June 2014 to less than $40 a barrel over the next two years. While oil prices have mostly see-sawed between $50-70 per barrel since then, retail prices of petrol and diesel have not recorded a proportional decrease.
In fact, over the course of the pandemic, retail fuel prices have hit record highs. This has been so because tax hikes that were implemented when crude prices dived to less than $20 a barrel last summer have not been reversed after oil prices recovered.
Over the past few years, both Union and state government levies on fuels have increased, though the quantum of the Union's tax hikes and collections have far exceeded that of state governments.
According to data from the Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas (MoPNG), excise collections on petroleum products stood at Rs 99,068.44 crore in FY2014-15, while state governments collected Rs 1.37 lakh crore in sales tax and VAT during the year.
However, this equation began reversing after the Union started hiking taxes as crude prices fell. Total central tax collections on petroleum products had doubled to over Rs 2 lakh crore a year by 2016-17 and, after the massive pandemic fuel tax hikes last summer, shot up to over Rs 3.7 lakh crore in 2020-21. Of this, Rs 3.42 lakh crore was collected through taxes on petrol and diesel alone, according to a reply in Parliament.
State government collections have risen too, but at a less frantic pace -- going from Rs 1.37 lakh crore in 2014-15 to Rs 2.02 lakh crore in 2020-21.
Data shows that between 2014-15 and 2020-21, the Union government has garnered a total of Rs 15.6 lakh crore in tax revenue through levies on petroleum products, while state governments have collected Rs 12.36 lakh crore.
Oil bond outgo
Meanwhile, the Centre's cash outgo due to interest payments on oil bonds has remained at around Rs 10,000 crore per annum during this period, with a total interest of Rs 70,195.72 crore paid between 2014-15 and 2020-21. And, as of March 31, 2021, the outstanding balance on oil bonds to be paid by the Union stood at Rs 1.3 lakh crore.
According to the government, over the next five fiscal years (from 2021-22 to 2025-26) it has to pay a total interest of Rs 37,340.44 crore, spread over each fiscal. It also has to repay the outstanding Rs 1.3 lakh crore of principal, of which Rs 10,000 crore is due in 2021-22, Rs 31,150 crore in 2023-24, Rs 52,860.17 crore in 2024-25, and Rs 36,913 crore in 2025-26.
This puts the total cash outgo due to the oil bonds between 2014-15 and 2025-26 at Rs 2.42 lakh crore -- Rs 73,695 crore in interest and principal paid so far; Rs 37,340.44 crore in interest to be paid between FY22-26; and the principal outstanding of Rs 1.3 lakh crore.
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