Govt keeps oil excise hike option open

Govt has urged states to cut VAT on the two fuels by at least 5% to give relief to consumers

A day after the Union government cut the excise duty on petrol and diesel by Rs 2 a litre, a senior finance ministry official hinted on Wednesday that the levy could be hiked to the previous level once global crude oil prices cool down. The government, meanwhile, asked states to cut the value-added tax (VAT) on the two fuels by at least 5 per cent to give relief to consumers.

“We do not expect the trend of oil prices to continue to be high; it may get subdued. Then there will again be scope for imposing it (previous excise duty rate),” the official, who did not wish to be named, told Business Standard. He said the ministry did not visualise continuing with this concession for the entire financial year. 

The revenue loss to the government on account of the latest duty cut will Rs 13,000 crore in the remaining part of the current financial year.

“We think this (rise in global crude prices) has happened due to cyclones in the US, and other short-term factors,” the official said. “If (global) oil prices come down, consumers will not be affected much. We do expect oil prices to come down in the coming few months, and we will again impose it (the duty),” he added. 

Seeking to provide further relief to consumers, Petroleum Minister Dharmendra Pradhan has urged state governments to cut VAT on petrol and diesel by at least 5 per cent. “Prime Minister Narendra Modi has taken the risk of losing huge money for the benefit of people. Now, state governments should take up the responsibility and cut VAT,” Pradhan told journalists here. 

Notably, even under the present VAT rates, states would lose some revenues as VAT is an ad-valorem tax imposed on ex-factory prices.  Pushed by the reduction in the excise duty, petrol prices were down Rs 2.50 a litre and diesel Rs 2.35 a litre in Delhi on Wednesday. 

Petrol had been at a two-year high of Rs 70.88 a litre and diesel at an all-time high of Rs 59.14 a litre in the Capital on Tuesday. “The finance ministry has already written to state governments, seeking a cut on VAT. Because of a cut in the excise duty and a drop in international prices, today’s fuel prices have turned advantageous for consumers,” said Pradhan. He said that of the excise duty collection, 42 per cent is transferred to states.  After Tuesday’s cut, the excise duty on petrol has come down to Rs 19.48 a litre on petrol and Rs 15.33 a litre on diesel.