Govt rules out excise on fuels; states can't afford blow of sales tax cut

A cut in taxes on petrol and diesel is ruled out for now as neither the Union government nor some states can afford to bear the revenue loss, a top government official said on Monday.

  • Published 10.09.18
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Gas station in Jaisalmer, Rajasthan. Picture credit: Shutterstock

New Delhi, Sep 10 (Agencies): A cut in taxes on petrol and diesel is ruled out for now as neither the Union government nor some states can afford to bear the revenue loss, a top government official said on Monday.

While a cut in the excise duty that the Union government levies will impact fiscal deficit, states such as Bihar, Kerala, and Punjab are not in a position to cut sales tax, the official, who wished not to be identified, said.

The Union government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47 a litre in nine instalments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre. India imports over 80 per cent of the petroleum it needs.

The government, he said, anticipates that international oil prices, which together with a drop in the value of rupee has been fuelling the fuel price rise to record levels, will moderate in coming days.

The comments come on a day when opposition parties held nationwide protests against record high petrol and diesel prices.

In Delhi, where the fuels are the lowest among all metros and most state capitals because of lower sales tax, petrol touched an all-time high of Rs 80.73 per litre on Monday while diesel a new high of Rs 72.83 a litre.

While Rajasthan on Sunday announced a four per cent cut in sales tax on petrol and diesel, Andhra Pradesh Monday said fuel prices will be reduced by Rs 2 each after a cut in sales tax.

“A cut in oil taxes will add to the fiscal deficit. National fiscal deficit determines bond yield and with a higher fiscal deficit the rupee becomes shakier,” the official said. “Then (as a result of cut in taxes) you have to make budget cuts in developmental expenditure. This is the real consequence of oil tax cut.”

He said the government can give a duty relief only when its finances are strong. “States do not have the capacity to reduce rates,” he said.

A cut of one rupee per litre in taxes would eat up in revenues by Rs 30,000 crore on an annualised basis.

“Oil prices disturb your CAD,” he said, referring to the current account deficit.

“We will be able to lower taxes when we are able to increase compliance on income tax and GST. Till then, dependence on oil will continue,” he said. The goods & services taxregime is yet to stabilise.

Fuel rates have been on fire since mid-August, rising almost every day as the rupee falls and  world oil prices rise.

Petrol price has gone up by Rs 3.65 a litre and diesel by Rs 4.06 per litre - the biggest increase in rates witnessed in any month since the launch of daily price revision in mid-June last year.

The official said every state collects sales tax and also gets 42 per cent of what the Union government collects.

Almost half of the fuel price is made up of taxes. The Centre levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy sales tax - the lowest being in Andaman & Nicobar Islands where a six per cent sales tax is charged on both the fuels.

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