Why time is ripe for cutting auto fuel taxes: Niti Aayog V-C Rajiv Kumar explains

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New Delhi | Published: April 30, 2018 5:41:30 AM

“When petroleum product prices are rising so much, I think a fiscal relief is required now. But, it (the cost of tax cut) should be shared between the Centre and states,” Kumar told FE in an interview.

according to him, among the three schemes proposed for assured minimum support prices for 23 agriculture crops at 150% of the cost of production, only the private participation model would be sustainable. According to Kumar, among the three schemes proposed for assured minimum support prices for 23 agriculture crops at 150% of the cost of production, only the private participation model would be sustainable.

The government may have remained non-committal on the demand for a cut in excise duties on petrol and diesel despite the retail prices of the two fuels skyrocketing, but Niti Aayog vice-chairman Rajiv Kumar believes the time is apt for tax relief to the consumers. “When petroleum product prices are rising so much, I think a fiscal relief is required now. But, it (the cost of tax cut) should be shared between the Centre and states,” Kumar told FE in an interview.

Fuel is a heavily taxed item in the country — for instance, central excise duty and state VAT (sales tax) alone account for 47% and 38%, respectively, of the retail prices of petrol and diesel in Delhi; other levies like royalty and cess on crude and local levies like octroi also inflate the final prices to the consumer. Kumar cautioned of a possible adverse impact of high fuel prices on inflation and the economy.

Also, according to him, among the three schemes proposed for assured minimum support prices for 23 agriculture crops at 150% of the cost of production, only the private participation model would be sustainable.

As FE reported earlier, the Niti Aayog had estimated that the total cost of nationwide implementation of Market Assurance Scheme (which involves procurement) could be a little over `1.11 lakh crore annually, assuming all the 23 crops identified, including wheat and rice, are covered up to 40% of the marketable surplus and capping the prices loss (difference between farm harvest prices and the minimum support prices) to be eligible for compensation at 25% of the MSPs. The second option was a price-deficiency payment scheme or PDPS, under which farmers are paid the difference between MSP and sale price at mandis (sans procurement). Sources had told FE earlier that the scheme where private players are to be roped in for procurement and stocking of food grains was not accepted by a group of ministers led by home minister Rajnath Singh. The agriculture ministry is preparing a Cabinet note in this regard. “The fiscal burden will become substantial if the first two options are adopted. So the sooner we get away from the fiscal burden, the better off we are,” Kumar said. He said states might also start complaining because even though the burden on them is much less than that on the Centre, they would have to spend initially before being reimbursed by the Centre.

Inflation in petrol and diesel eased to 2.3% in March from 2.7% in the previous month but it still remained higher than the January level of 1.7%, even though the price pressure in this segment has come off its peak last year. With global crude prices expected to remain high, petrol, diesel inflation could inch up again. The IMF has forecast that Brent crude oil price could average $64.6 a barrel for 2018, up 19% over 2017.

Besides fanning inflation, persistently high oil prices remain a key risk to the current account deficit (CAD) of the country, chief economic adviser Arvind Subramanian had said in the Economic Survey for 2017-18. A $10 per barrel increase in the price of oil reduces economic growth by 0.2-0.3 percentage points and worsens the CAD by about $9-10 billion, he had said.
As crude prices continued a downward spiral, the Centre raised excise duty nine times between November 2014 and January 2016 to boost revenues, but it cut the tax just once in October 2017 by `2/litre. As a result, the Centre’s revenues from excise on petrol and diesel increased annually by 80% in FY16 and by 36% in FY17.

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