Yielding to rising pressure from industry and the general public, the Centre on Wednesday announced reduction in the ‘central excise duty’ on petrol and diesel by Rs 5 and Rs 10 respectively. The tax cut, which will take effect from Thursday, will bring down the central taxes on petrol and diesel to Rs 27.9 per litre and Rs 21.8 per litre, respectively, enabling even higher reductions in the retail prices of the two auto fuels, as state-level ad valorem taxes are levied on a price inclusive of the central levies.
Retail price of petrol in Delhi crossed the Rs 110-mark for the first time on Tuesday, as state-run oil marketing companies (OMCs) gradually increased the base-price of the product amid rising international crude rates. The surge in crude prices are likely to continue till the end of the year with the OPEC+ countries showing no signs of increasing production over the pre-determined levels till December, even as global crude demand is on the rise. In the absence of tax cut, the prices of both petrol and diesel would have risen further till the end of the 2021.
Since the Modi 1.0 government took over in May 2014, there have been as many as 12 instances of increases in the Centre’s auto fuel levies; the steepest increases were in March and May 2020. As a result, the Centre’s taxes on petrol and diesel are at Rs 32.9/litre and Rs 31.8/litre, respectively, at present, against the rates of Rs 9.48/litre and Rs 3.56/litre that prevailed in early FY15.
Moreover, the shareable part of the taxes has shrunk. For instance, while as much as 41% of the central taxes on diesel were shared with the states under the relevant formula in FY15, just 5.7% was shared with the states several months till Wednesday, meaning the restructuring of tax rates has hugely benefited the Centre.
“The Indian farmers have, through their hard work, kept the economic growth momentum going even during the lockdown phase and the massive reduction in excise on diesel will come as a boost to the farmers during the upcoming Rabi season, the government said in a statement.
“In recent months, crude oil prices have witnessed a global upsurge. Consequently, domestic prices of petrol and diesel had increased in recent weeks exerting inflationary pressure. The world has also seen shortages and increased prices of all forms of energy. The Government of India has made efforts to ensure that there is no energy shortage in the country and that commodities such as petrol and diesel are available adequately to meet our requirements,” it added.
