NEW DELHI: Even as Prime Minister Narendra Modi gets into the debate on who (states or the Centre) should cut taxes on fuel, many economists believe the central government has some scope to cut further taxes to bring it to pre-pandemic levels.
Centre collects Rs 27.9 as excise duty on every litre of petrol and Rs 21.80 on diesel, which is still higher than the pre-pandemic levels. Though the government has reduced excise by Rs 5 on petrol and Rs 10 on diesel, the reduction is less than the total increase in excise of Rs 13 a litre on petrol and Rs 16 a litre on diesel in 2020.
In the recent Monetary Policy Committee (MPC) meeting, one of the MPC members, Ashima Goyal, had opined that there was room to cut fuel taxes to mitigate the pass-through of international prices to consumers. “Excise duty could go back to 2019 levels that were high enough to limit oil consumption,” Goyal had said in her statement.
Prashant Vashisht, vice-president of Corporate Ratings, ICRA, also believes that there is scope for the centre to cut down further taxes to bring it to pre-pandemic levels. He, though, points out that when the Centre had reduced taxes in November 2021, not all states had cut the rates, which he says they should. The prime minister on Wednesday asked states such as Maharashtra, West Bengal, Telangana, Andhra Pradesh, Tamil Nadu, Jharkhand and Rajasthan to reduce VAT on fuel.
Maharashtra, where petrol price is the highest at Rs 120.5 a litre, the state collects Rs 32.22 as taxes (as against Rs 27.9 by Centre). Telangana collects Rs 31.2, Rajasthan Rs Rs 29.73, West Bengal collects Rs 26.82, Andhra Rs 22.55 as taxes from petrol.
Other states like Delhi collects Rs 17.13, Uttar Pradesh Rs 16.95, Madhya Pradesh Rs 29.84 and Karnataka Rs 22.79 as taxes from petrol. However, the total tax revenue collected by Centre from the petroleum sector (including customs duty, cess, etc) has increased 233% since 2014-15 to Rs 4.20 lakh crore in 2020-21. During the same time tax revenue of states from these products has increased only 36% to Rs 2.2 lakh crore.