The Union government is contemplating reducing excise duties on petrol and diesel to bring down their prices in the domestic market. Notably, the Union government is facing a flak for the record high petrol and diesel prices in the country owing to the high taxation imposed by it.
India is the world’s third-biggest consumer of crude oil, but prices of petrol and diesel have gradually gone up to record levels. While 60 per cent of the retail price of petrol and diesel account for taxes and duties, the rising crude prices have become a major concern for the government. Crude prices that declined to record lows amid the COVID-19 pandemic have doubled in the past 10 months.
As the COVID-19 pandemic hit economic activity, the Union government twice raised taxes on petrol and diesel in the last 12 months to boost sagging tax revenues instead of passing on the benefits of low oil prices last year to consumers.
Finance ministry starts consultation
The finance ministry has now started consultations with some states, oil companies and the oil ministry to find the most effective way to lower the tax burden on consumers without federal finances taking a big hit, the sources said.
“We are discussing ways in which prices can be kept stable. We will be able to take a view of the issue by mid-March,” one of the sources said. The sources, who asked not to be named as the deliberations are private, said the government wants oil prices to stabilise before cutting taxes, as it does not want to be forced to change the tax structure again, should crude prices rise further.
States reduced taxes on petrol, diesel
Finance minister Nirmala Sitharaman recently said, “I cannot say when we will reduce taxes on fuel, but the Centre and states have to talk to reduce fuel taxes.” The high fuel prices have prompted some Indian states to cut state-level taxes on petrol and diesel to rein in prices.
“There is an expectation that OPEC+ would agree to ease oil output curbs, we hope oil prices will stabilise after their decision,” a source said. India has called on OPEC+ to ease production cuts as higher crude prices are hitting fuel demand in Asia’s third-largest economy and are contributing to inflation.
The high fuel prices could also affect PM Modi’s popularity ahead of the state Assembly polls in four states in March and April. The government and states together raised some Rs 5.56 trillion in revenues from the petroleum sector in the fiscal year ended March 31, 2020, based on government data.
In the nine months of this fiscal year (April-December 2020), contributions from the sector were about Rs 4.21 trillion, despite a significant decline in local fuel demand, the data showed.
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