Both the Centre and states are facing unprecedented tax revenue deficits this year, but petrol and diesel will still be a cash cow for them. The Centre’s tax revenue from the two auto fuels, post-transfers to the states, could be `3.8 lakh crore in FY21, up a whopping 90%, according to an FE estimate. The states could also find their tax revenue from the fuels rising in the year – an estimated 10% is still a decent growth in the pandemic year. The estimates are based on latest sales projections for the year (annual sales are seen down by 11% by Crisil) and the sharp increase in tax rates (mainly by Centre) compared to the rates prevailed in FY20.
For instance, the Centre’s tax on diesel (basic excise, special additional excise and road/infra cess) is currently Rs 31.83/litre, compared with just Rs 15.83/litre in early October 2019. Corresponding figures for petrol are Rs 32.98 and Rs 19.98. The divisible portion of the tax pool, however, remained the same at Rs 4.83 (diesel) and Rs 2.98 (petrol), which explains the big jump projected for the Centre’s revenue in FY21, while states’ (post-devolution) revenue is seen to rise modestly. The Centre hiked special additional excise/cess levied on petrol and diesel sharply in October 2019, March 2020 and then in May. These taxes are not part of divisible pool, only the basic excise is.
Crisil has estimated an annual 11% drop in sales of the auto fuels in FY21. It sees 80 million tonne (MT) of petrol and diesel to be sold in the last three quarters of the fiscal. In the first quarter, the Centre’s tax collections from the two fuels was only Rs 42,094 crore, owing to a sharp dip in sales and relatively lower tax incidence in April (steep tax hikes were effected in May).
Of course, increased Central government duties will raise the taxable value of petrol and diesel for the levy of state sales tax/VAT. “This higher taxable value of the fuel is providing additional sales tax of about Rs 3 per litre to states on weighted average basis,” Ankit Hakhu, director, Crisil Ratings wrote.
Many states such as Gujarat, Haryana, Delhi, Rajasthan, Maharashtra and Karnataka have also increased the sales tax/VAT on the two transportation fuels. States earned around Rs 1.8 lakh crore from sales tax and VAT on petrol and diesel in FY20; Crisil expects this figure to rise to Rs 1.96 lakh crore in the current fiscal. FE has estimated the total tax receipts of states from the two fuels in FY21 at close to Rs 2.2 lakh crore, including the divisible pool share, while the same was Rs 2 lakh crore in FY20.
With the gradual lifting of the lockdown, petrol sales were up 2% annually in September, the first month in the current fiscal to post a positive growth. Diesel sales, however, remained down 7% annually even in September. Taxes on petroleum products comprise about 65% of the petroleum sector’s contribution to the Central exchequer. Cess and royalty on domestic crude production, customs duty on crude imports, dividends etc. make up for the rest.
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