Excise duty cut on petrol, diesel on cards if crude oil prices breach comfort level

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Published: February 5, 2018 2:21:08 PM

Economic Affairs Secretary Subhash Garg has said that the government may cut excise duty if the crude oil prices breach the comfort level. The price of Brent oil on Monday was $68.01 per barrel, while petrol price is at three-year-high and diesel price is at record high.

Petrol price closes in on Rs 80 per litre as Brent crude oil ralliesExcise duty cut on petrol, diesel if crude oil prices breach comfort level (Image: Reuters)

In the Budget 2018, it was expected that the government will cut the excise duty on the advice by the oil ministry to cushion the impact of higher crude oil prices, which had pushed petrol price to a three-year-high and diesel price to a record high. However, there was no such announcement. CNBC-TV reported citing a wire report which quoted Economic Affairs Secretary Subhash Garg saying that the government may cut excise duty if the crude oil price breaches the comfort level. The price of Brent oil on Monday was $68.01 per barrel, lowest in a month after briefly topping $70 per barrel in mid-January.

After the presentation of the Budget 2018, Finance Minister Arun Jaitley in an interview with DD News said that at the current level ($68 per barrel), the government is bearing the shock, while the government is comfortable with the oil price up to $60 per barrel. However, global oil analysts predict that the Brent might touch $80, or even $100 per barrel by next year. The oil ministry had asked Arun Jaitley to cut excise duty on petrol, diesel in the Budget, however, it is understood that lower fiscal room did not allow the finance minister to cut the excise.

According to BTVi, the oil ministry last month indicated that the government may review excise duty on petrol, diesel when, and if, crude oil price touched $75 per barrel. Oil minister Dharmendra Pradhan had been long asking for bringing petrol and diesel under the Goods and Services Tax (GST). The GST Council is said to have discussed the issue, however, the decision may take some time.

Also Read: Rising crude oil price may derail Arun Jaitley’s tight Budget 2018 roadmap

Crude oil prices are rallying on the back of production cuts, middle-east crisis and higher global demand. In the last four months, the crude oil prices have surged $13 per barrel, while petrol and diesel prices were up over Rs 3 per litre during the same period despite a Rs 2 per litre cut announced by the government. The three-year-long low oil price windfall allowed the Narendra Modi government to hike excise duty on petrol and diesel by Rs 12 per litre and 13.77 per litre respectively since April 2014, before cutting it by Rs 2 per litre in October last year.

As government faces lower indirect tax collections, it restructured excise duty and cess on petrol and diesel in the Budget to redirect higher revenue to the central government. The government, in the Budget 2018, cut the excise duty by Rs 2 per litre and additional excise duty by Rs 6 per litre and introduced a Road and Infrastructure Cess of Rs 8 per litre.

While the excise duty is shared between the central government and state governments, cess is exclusively for the central government. “Some of the excise duties, one of the entries, have been shifted into a cess, that is because to balance the central revenues itself, particularly after the GST, central revenues was taking a hit. To consumers, the price impact would be different,” Arun Jaitley said last week.

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