NEW DELHI: Even as the government seeks to refrain from cutting fuel excise duty to avoid any dent in revenue collections, a section of analysts says there is room to cut excise duty on petrol and diesel by up to Rs 8.5 per litre without impacting its revenue target from the tax on the two fuels.
“We estimate excise duty on auto fuels in FY22 (April 2021 to March 2022), if it is not cut, at Rs 4.35 lakh crore versus budget estimate of Rs 3.2 lakh crore. Thus, even if excise duty is cut by Rs 8.5 per litre on or before April 1, 2021, FY22E budget estimate can be met,” said analysts at ICICI Securities.
It expressed optimism for an excise duty cut given demand recovery, impending privatisation and inflation concerns but expected it to be more modest than Rs 8.5 a litre.
Excise duty was raised by Rs 13 and Rs 16 per litre on petrol and diesel between March 2020 and May 2020, and now stands at Rs 31.8 on diesel and Rs 32.9 per litre on petrol.
The increase in excise duty was to mop up gains arising from global crude oil prices falling to a two-decade low. But, with oil prices recovering, it has not yet restored the taxes to their original levels.
“If the cut is more modest, which we expect, FY22 excise duty will be higher than the budget estimate,” ICICI Securities said.
There is mounting pressure from all the quarters to reduce taxes on petrol and diesel. Sources say that the Finance Ministry vigorously started to discuss the burning issue which has created a hole in consumers’ pockets.
Officials also said that the Centre have started to find a way to start deliberation with states.
Petrol is priced at Rs 91.17 per litre in Delhi and diesel comes for Rs 81.47. Central and state taxes make up for 60 per cent of the retail selling price of petrol and over 54 per cent of diesel.
The rates of regular petrol had last month crossed the Rs 100-mark at a few places in Rajasthan and Madhya Pradesh, which levy the highest value-added tax (VAT) on the fuel in the country.
Earlier, Finance Minister had said that the only way to find a solution to this problem is that the Centre and states should hold a dialogue.
“I concede that’s where action has to be, let’s see what we can do,” said Sitharaman, adding that she agrees the end-users should pay less for fuel.