Better tax planning needed to keep fuel inflation in check

The Union government excise duty cuts have effectively reduced retail prices by Rs 9.5 and Rs 7, respectively, bringing welcome relief to the common man.

Published: 25th May 2022 07:09 AM  |   Last Updated: 25th May 2022 07:09 AM   |  A+A-

Petrol, Fuel

Image used for representational purpose only. (Photo | EPS)

The Union government excise duty cuts have effectively reduced retail prices by Rs 9.5 and Rs 7, respectively, bringing welcome relief to the common man. Prices of LPG cylinders under the Ujjwala scheme have also been reduced by Rs 200 a cylinder. These slew of measures will hopefully slow raging inflation. Retail inflation has touched an eight-year high of 7.79% in April and has been hovering above the Reserve Bank’s upper-level target of 6%. Some Opposition-ruled states have also obliged with a welcome reduction in state taxes or VAT on petrol and diesel.

The price of fuel contributes as much as 4.7% to the inflation basket. If one calculates the cascading effect on transport and cost of manufacturing, the impact is probably higher. In this context, taxing gasoline as a revenue source must always be carefully balanced. However, the historical record shows successive governments have used this turbulent commodity as a cash cow to balance its deficits. Central excise and state-level tax or VAT even now accounts for 37% of the price on petrol, and 32% on diesel.

While the Ukraine war has pushed up international crude oil prices, it must be remembered that between 2014 and 2016, when crude oil prices plummeted from $106 a barrel to around $75, the Centre, instead of passing on the benefit to consumers, repeatedly raised the excise duty on petrol and diesel and made windfall profits. When the Union government now claims it has to forego over Rs 1 lakh crore in revenue with the excise cuts, it must be remembered, in FY2022, tax collection from petrol and diesel stood at over Rs 3 lakh crore, an 88% jump from the previous year. Even after the cuts, central excise duty still makes up Rs 19.9 a litre on petrol, and Rs 15.8 a litre on diesel. For comparison: When the BJP government took over in 2014, excise duty on petrol was just Rs 9.48 per litre, and that on diesel Rs 3.56 a litre. Increasing fuel prices have a galloping impact, and the government must thus strive to provide more relief on this front.


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

flipboard facebook twitter whatsapp