Given the importance of petroproducts in the government’s revenue, it appears that the government would rather not cut the tax rates as it would impact revenue collections.
While petrol and diesel prices in India continue to rise for the last 21 days, consumers might have to wait before any relief in retail fuel prices, as the government may not cut taxes on fuel anytime soon. Given the importance of petroproducts in the government’s revenue, it appears that the government would rather not cut the tax rates as it would impact revenue collections, Care Ratings said in a report. The central government garnered Rs 4.23 lakh crore in excise duty and VAT collection on petroproducts during the last fiscal year 2019-20, which was 78 per cent of its total excise revenue. The remaining excise duty collection came from crude oil cess and customs; royalties; and CGST.
However, given the sharp fall in consumption coupled with the travel restrictions, the government is not expected to accrue a sizable amount of revenue even with the increase in excise duty and VAT. While economic activity came to a standstill during the nationwide lockdown, the government tapped the petroleum route to generate revenue by dramatically raising the duties on fuel. Citing the low crude oil prices, it had also assured that the consumers will not have to bear the brunt of high fuel prices.
In September-October 2018, when prices of petrol and diesel were around Rs 80-83 a litre, Brent crude oil too was hovering around USD 80-85 per barrel but now when the price of crude oil is ranging between USD 38-41 per barrel, the petrol price has been fixed at Rs 80.38 per litre and diesel price has been fixed at Rs 80.40 per litre. The government collects around 260 per cent taxes on the base price of petrol and 256 per cent in the case of diesel.
High fuel prices may put pressure on household expenditure
High petrol price could raise the household expenditure, which is already strained due to the fall in income levels; while the increase in diesel prices can additionally affect the farm income and cost of essentials which could increase the inflation, the Care Ratings report further said. Record high prices for diesel may also shoot up the cost of transporting goods, which in turn may put pressure on prices of essential commodities like fruit and vegetables.