Excise duty hike on fuels to net Centre Rs 3,000 crore more

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New Delhi | Updated: January 17, 2015 1:33 AM

For the fourth time since November, the government on Friday hiked excise duty on both petrol...

The Centre is likely to earn about Rs 3,000 crore in the remaining months of FY15 thanks to the latest tax hike. ReutersThe Centre is likely to earn about Rs 3,000 crore in the remaining months of FY15 thanks to the latest tax hike. Reuters

For the fourth time since November, the government on Friday hiked excise duty on both petrol and diesel by R2 per litre. Oil marketing companies, which absorbed the previous tax increases even while deferring price cuts corresponding to the fall in crude oil prices, reduced prices of petrol and diesel by R2.42 a litre and R2.25 a litre, respectively, effective January 17.

The Centre is likely to earn about R3,000 crore in the remaining months of FY15 thanks to the latest tax hike. Together, the four excise duty hikes since November will result in about Rs 17,500 crore in additional revenue this fiscal.

On January 2, the Narendra Modi-led government had raised excise duty on petrol and diesel by R2 per litre. Prior to that, the tax was hiked by R1.50 a litre each from November 12 and R2.25 per litre on petrol and R1 on diesel from December 2.

A finance ministry notification said excise duty on unbranded petrol is being hiked to R8.95 per litre and that on unbranded diesel to R7.96 per litre.

graph-petrol

The government’s move to increase duties on the auto fuels is seen as a move to mop up funds to meet the fiscal deficit of 4.1% in the current year. In 2013-14, the government collected R77,982 crore from excise duty on petroleum products out of a total excise duty collection of R1,79,000 crore. During April-December of FY15, the total excise duty collection was around R1,19,719 crore, up 1.6% against the same period last year.

The government was under attack on allegations that oil marketing companies are not able to reduce fuel prices even when global prices have come down because duties are being hiked.

Without the excise duty hikes, petrol price would have declined by R7.75 per litre, while there would have been R6.50 a litre cut in diesel rates. Oil prices have dropped by nearly 60% since June as production around the world has soared, outstripping demand at a time of lacklustre global economic growth.

The price of the Indian basket of crude oil has dropped to $61.21 a barrel in December against $105.62 a barrel in April. Brent crude fell to below $45 a barrel earlier this week but rose more than $2 to almost $50 a barrel on Friday after the International Energy Agency (IEA) forecast the market downtrend would end, although analysts said a strong rebound soon was unlikely as global output continued to outweigh demand.

Earlier in the day, petroleum minister Dharmendra Pradhan responded to criticism of oil firms not cutting despite a near 4% fall in global rates since January 1 saying the pricing was “not in our hands” as the two fuels have been deregulated. “What oil companies feel appropriate they will do,” he said at at 13th Petro India Conference, organised by India Energy Forum.

Alongside Pradhan, Indian Oil Corporation chairman B Ashok justified the decision not to revise rates saying oil firms were saddled with huge inventory that need to be compensated. The three OMCs are expected to incur an inventory loss of R27,000 crore in the first nine months of the current fiscal.

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