Given the government’s push for green energy and electric vehicles, any further reduction in the rates of various cesses on petrol and diesel is unlikely for now, even as the crude prices have firmed up again necessitating hikes in retail fuel prices, according to official sources.
“There is a lot of focus on promoting green energy and electric vehicles. The current excise duty structure on petrol and diesel is now acting as an incentive for users to switch to EVs and is also helping limit consumption,” noted a source, adding that retaining the current excise duty rate is a part of a clearly thought-out policy.
The Union Budget 2023-24 had also announced a number of sops with the intention to popularise the adoption of electric vehicles and has listed green growth as a key focus area. These include customs duty exemption to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles.
Officials also noted that with overall inflation now easing, consumers are likely to get some relief from high prices without the need for a review of the fuel duty structure.
But with nearly half dozen state elections in the coming months and the General Election next year, they did not rule out a symbolic cut based on a political call. The Centre has cut the excise duty on two occasions and some states have also cut VAT.
The hikes in auto fuel cesses has played a big role in boosting non-shareable kitty of the Centre. The Centre’s tax on diesel (basic excise, special additional excise and road/infra cess) is currently Rs 15.8/litre, down from a peak of Rs 31.83/litre between May 6, 2020 and February 2, 2021. The case of taxes on petrol is similar.
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. However, the taxes have been cut three times since February 2021, amid criticism that hefty taxes are inflating the retail prices of auto fuels and jacking up fuel as well as fuel and headline inflation rates.
Sources said the windfall taxes too will continue until oil prices remain sufficiently high and they are unlikely to be withdrawn for now, the source said.
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While the government has till now not indicated a level at which oil prices would turn sufficiently low for the windfall tax to be removed, officials indicated that the tax is levied based on a consideration of the exchange rate, import value and the gap between with domestic price and the import value.
The Centre had imposed special additional excise duty of Rs 23,250/tonne on crude and export taxes on petrol, diesel and ATF at 6/ litre,13/litre and `6/litre, respectively from July 1, 2022. It subsequently removed the tax on petrol and in the last fortnightly review held earlier this month, it had also reduced the windfall tax on domestically produced crude oil to zero.
For now, petroleum products continue to remain outside the purview of the goods and services tax and attract customs duty and excise duty by the Centre along with value added tax levied by States. With retail prices of petrol and diesel at about 100 per litre and90 per litre in most cities, consumers have been hoping for some reduction in prices.
The tax on petroleum products has also been a source of revenue for both the Centre and states. The petroleum sector contributed as much as Rs 7.74 trillion to the Exchequer in FY22 through the levy of basic excise duty, special additional excise duty, road and infrastructure cess, agriculture and infrastructure development cess.
