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Govt Rules Out Excise Duty Cut on Petrol and Diesel, Says Can't Stomach Revenue Loss

The central 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 installments between November 2014 and January 2016.


Updated:September 10, 2018, 7:02 PM IST
Govt Rules Out Excise Duty Cut on Petrol and Diesel, Says Can't Stomach Revenue Loss
Illustration by Mir Suhail/
New Delhi: A cut in taxes on petrol and diesel is ruled out for now as neither the central government nor some states have the appetite to stomach revenue loss from such a move, a top government official said Monday.

While a cut in excise duty that the central government levies will impact fiscal deficit, states like Bihar, Kerala, and Punjab are not in a position to cut sales tax (or VAT), the official, who wished not to be identified, said.

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 to take pressure off.

The comments come on a day when opposition parties held nationwide protests against record high petrol and diesel prices. Prices in Delhi, where rates are the cheapest among all metros and most state capitals because of lower VAT, saw petrol touch an all-time high of Rs 80.73 per litre Monday while diesel scaled to new high of Rs 72.83 a litre.

The official said consumers will have to pay for the fuel they use.

While Rajasthan on Sunday announced a 4 per cent cut in VAT on petrol and diesel, Andhra Pradesh Monday said fuel prices will be reduced by Rs 2 each from 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's ability to give relief was only when its finances are strong. "States do not have the capacity to reduce rates," he said.

A one rupee per litre cut in taxes would result in revenues being hit by Rs 30,000 crore on an annualised basis.

"Oil prices disturb your CAD," he said adding oil companies will not be asked to take a hit for now as users should pay for the utility they use.

"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.

Fuel rates have been on fire since mid-August, rising almost every day due to a drop in rupee value and rise in crude oil rates. Petrol price has risen 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 VAT and also gets 42 per cent of what Centre 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 Value Added Tax (VAT) - the lowest being in Andaman and Nicobar Islands where a 6 per cent sales tax is charged on both the fuel.

Mumbai has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel. Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel.

The central 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 installments 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.

This led to its excise collections from petro goods more than doubling in last four years - from Rs 99,184 crore in 2014-15 to Rs 2,29,019 crore in 2017-18. States saw their VAT revenue from petro goods rise from Rs 1,37,157 crore in 2014-15 to Rs 1,84,091 crore in 2017-18.

"Our analysis shows that crude oil prices do not move in a straight line. Some months it goes up and some months it comes down," he said. "Bringing oil in GST is not a solution. The only way taxes on oil can be brought down is by increasing non-political tax-GDP ratio."

The tax ratio can be raised not by increasing rates but by bringing evaders and non-filers in tax net. "2007 was the only year when we saw an increase in tax-GDP ratio. 2008-2014 it was static," he said.
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