Another excise hike for petroleum products on cards to offset revenue loss

No immediate hike, marginal increase likely to be implemented only after lockdown is lifted

Yearning for revenue at a time of deep resource crunch, the Centre is considering another excise duty hike on petrol and diesel. The hike could be notified after the resumption of economic activity once the nationwide lockdown is broadly lifted.
 

“There may be marginal hike in excise duty to offset revenue loss due to lack of demand. Discussions are being held internally,” said a senior government official.
 

A second government official said out that with hardly any economic activity, an immediate duty hike will not be productive and could be announced once the lockdown eases and demand revives. “It may be notified once the economic activity restarts more substantially," the person said.
 

Amid falling international crude oil prices, the government in March introduced an enabling provision to hike excise duty on petrol and diesel by Rs 8 per litre in future in the finance Act. The government had, on March 14, raised excise duty on petrol and diesel by ?3 per litre each, which will help raise an additional Rs 39,000 crore in revenue annually.

This duty hike included Rs 2 a litre increase in special additional excise duty and Rs 1 in road and infrastructure cess. This hike took the special additional excise duty to the threshold level of Rs 10 for petrol and Rs 4 in case of diesel. The limit has now been increased to Rs 18 a litre in case of petrol and Rs 12 in case of diesel by way of amendment of the Eighth Schedule of the Finance Act.

Brent crude oil rose on Wednesday after slumping below $16 a barrel to its lowest since 1999, supported by voluntary as well as the prospect of forced production cuts to tackle a glut caused by the coronavirus crisis. U.S. West Texas Intermediate (WTI) was up 9 cents, at $11.66. On Monday, WTI crude had slumped to a stunning $ 37 a barrel.

The Indian crude basket is a weighted average of Oman, Dubai and Brent Crude, and is currently around $20.56 per barrel. The impact of falling oil prices would not be much on subsidies, though India would be in a comfortable position so far as imports, and hence current account deficit, is concerned, officials said.

“Every $10 a barrel change in oil prices leads to an impact of around $15 billion in current account deficit,” said the first official quoted above. The 2020-21 petroleum subsidy budgeted estimate, of Rs 40,915 crore, is all on account of liquefied petroleum gas, as kerosene subsidies have been eliminated.
 

Aditi Nayar, principal economist, ICRA said that the fall in crude oil prices has not transmitted into the retail prices of petrol and diesel. "However, the plunge in consumption of various fuels, especially during the lockdown period, would have an adverse impact on the state governments' revenues," said Nayar.
 

With the slowdown in India due to the lockdown, India cannot take advantage of the oil price crash as it could have, as economic activity has come to a halt. The government’s revenues from the oil sector is expected to take a hit if there is no excise duty hike. For the Centre, most of the taxes on the petroleum sector are specific in nature and not based on the price of the products, unlike those of states. Its revenue will be hit because of lower consumption.