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COVID-19: Fuel Tax May Go Up By Rs 8 Per Litre

Publish On: 24 Mar, 2020 10:03 AM | Updated   |   Madhurima  

NEW DELHI: The government has decided to boost excise duty on petrol and diesel significantly, by up to Rs 8 per litre, to mobilise additional resources that will be required to fight the Covid-19 pandemic.

In amendments introduced in the Finance Bill 2020, the Finance Ministry has proposed to boost special additional excise duty on petrol to Rs 18 per litre from present Rs 10 per litre and on diesel to Rs 12 per litre from the current Rs 4 per litre. The said changes are being made by amending the eighth schedule of the Finance Act 2002.

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It is not clear whether the whole Rs 8 per litre increase in special additional excise duty would be used as a cap to boost duties up to that very level or the govt. would notify the complete increase at one go.

If this happens, the retail price of petrol and diesel could increase by Rs 5-6 per litre because the remaining amount could also be absorbed by public sector oil marketing companies who are daily reducing the value of two petroleum products in line with global fall of oil prices.

Sources said that a notification with changes in duty structure on petrol and diesel may come later.

But for the govt., an Rs 8 per litre tax would be a bonanza that will increase its annual excise collections from that particular sector by a whopping Rs 1,20,000 crore. This, administration feel, alongside savings of over $ 15-20 billion in oil import bill in FY21, will provide enough room to bring the economy back on course after Covid-19 fight.

Along with a rise in cap/threshold on special additional excise duty, a recent ceiling has also been fixed for extra excise duty (road and infrastructure cess) levied on petrol and diesel. This has also been raised by Rs 8 per litre on the 2 products to Rs 18 per litre.

But any resultant increase within the retail price of the 2 products could have a negative impact on the economy, which is already facing a slowdown. The rise in the prices of the increase of auto fuels could have a multiplier effect, raising prices of several essential products and services and pushing up inflation.

In February, consumer price inflation has fallen to 6.58 per cent but this might begin to rise again if petrol and diesel prices are raised.

On March 14, the govt. had raised excise duty on petrol and diesel by Rs 3 per litre, the very best within the five years, taking advantage of the low global oil prices to raise its coffers. Through this increase, the centre could gain in more than Rs 45,000 crore of revenue for the complete year.

The increase of Rs 8 per litre in excise duty is going to be the very best within the two tenures of the NDA government. It'll follow the Rs 3 per litre increase in duty on March 14 and another Rs 2 per litre increase in excise/cess proposed in 2019 Union Budget. Before these increases, petrol and diesel price went for a series of nine hikes in quick succession between 2015 and 2016. There have been, however, cuts of Rs 2 per litre twice on both petrol and diesel in October 2017 and again in October 2018.

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At present, the overall central excise duty on petrol stands at Rs 22.98 per litre and on diesel, at Rs 18.83 per litre. With Rs 8 per litre increase, these would increase substantially to Rs 30.98 per litre on petrol and Rs 26.83 on diesel. Additionally, states also levy VAT on the 2 products. Petrol and diesel haven't been to date included under the GST.