Rediff.com  » Business » Govt gains Rs 1.6 lakh cr from excise duty hike on petrol, diesel

Govt gains Rs 1.6 lakh cr from excise duty hike on petrol, diesel

Source: PTI
May 06, 2020 16:30 IST
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The Union government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record hike in excise duty on petrol and diesel that has pushed the total incidence of taxation on auto fuels to 70 per cent of the price. 

Photograph: Eric Gaillard/Reuters.

Late on Tuesday evening, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low. 

Petrol price remained unchanged at Rs 71.26 a litre and diesel at Rs 69.39 as State-owned oil firms set off the excise duty hike against gains they accrued from fall in international oil rates. 

This is the second hike in excise duty in less than two months and will help the government garner over Rs 1.6 lakh crore in additional revenues annually at 2019-20 level of consumption, industry officials said. 

 

Considering the slump in consumption due to travel restrictions imposed by coronavirus lockdown, the gains in the remaining 11 months of the current fiscal year (April 2020 to March 2021) will be close to Rs 1.6 lakh crore, they said. 

Together with Rs 39,000 crore in annual revenues gained from the March 14 excise duty hike of Rs 3 per litre each on petrol and diesel, the government stands to gain as much as Rs 2 lakh crore. 

After the excise duty hike, taxes -- both central excise and state VAT -- make up for 70 per cent of the price of petrol and diesel. A litre of petrol costs only Rs 18.28 per litre in Delhi but after including excise duty (Rs 32.98), dealer commission (Rs 3.56) and VAT (Rs 16.44) the price for consumer comes to Rs 71.26 a litre. 

Similarly, a litre of diesel costs only Rs 18.78 but after including excise duty (Rs 31.83), dealer commission (Rs 2.52) and VAT (Rs 16.26), it is priced at Rs 69.39 for consumers. 

State-owned fuel retailing companies, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL), had frozen petrol and diesel prices since March 16, anticipating the government move and will now set off gains they accrued from the continuing drop in international oil prices against the excise duty hike. 

ICICI Securities said the excise duty hike would mean a plunge in gross auto fuel marketing margin by 64 per cent (Rs 12.1 a litre) from Rs 19 on May 5 to Rs 6.9 on May 6. 

Emkay Global said oil marketing companies (OMC) have continued to pass on numerous VAT rate hikes implemented on petrol and diesel by states, but as gross margins touched a high of over Rs 18/20 on Tuesday, the excise hikes are most likely to be absorbed. 

"The overall price freeze has now crossed 45 days. OMC officials have stated unrealistic global prices to be the reason behind this, but looking at the 60 per cent estimated drop in auto-fuel consumption, the 6-7x jump in marketing margin from normative rate implies more than making up for the volume hit," it said. 

Officials said normally retail prices would have changed with any revision in taxes but like March 14, there is no change as the excise duty hike is being adjusted against the gains consumers should have got from Brent crude oil dipping to about USD 18 per barrel -- the lowest since 1999. 

Commenting on the excise duty hike, Vikas Halan, senior vice president, corporate finance, Moody's Investors Service, said: "Government of India's increase in petrol and diesel taxes by USD 21/barrel and USD 27/ barrel respectively will result in government's tax collection increasing by about USD 21 billion if the tax hike is maintained for the full year. 

"This reinforces the importance of oil marketing companies to the Government of India and validates the support incorporated in our credit assessment of these companies. The tax hike could result in higher working capital outflow for the oil marketing companies, which will partly offset the working capital savings from lower inventory costs." 

According to a notification issued by the Central Board of Indirect Taxes and Customs, special additional excise duty on petrol has been hiked by Rs 2 per litre and road cess has been hiked by Rs 8 a litre. In case of diesel, special additional excise duty has been hiked by Rs 5 per litre and road cess has been raised by Rs 8 a litre. 

With this, the total incidence of excise duty on petrol has risen to Rs 32.98 per litre and that on diesel to Rs 31.83. 

Petrol costs Rs 71.26 a litre in Delhi and a litre of diesel comes for Rs 69.39. 

Central excise duty makes up for 46 per cent of petrol and diesel price now. After considering local sales tax or VAT, the total tax incidence in the price is as high as 60 per cent. 

The excise tax on petrol was Rs 9.48 per litre when the Narendra Modi government took office in 2014 and that on diesel was Rs 3.56 a litre. 

The government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices. 

In all, duty on petrol was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped the government's excise mop-up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15. 

It cut excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But, it raised excise duty by Rs 2 per litre in July 2019. 

It again raised excise duty on March 14 by Rs 3 per litre. 

Government sources said the Centre has taken this step of increasing duty to raise some revenue in view of a tight fiscal situation. This would help in generating the resources to meet the expense of coronavirus fight as well as meet other spending needs such as on infrastructure.

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