Govt rules out excise duty cut as petrol, diesel prices hit fresh high

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."
"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."
"We have given income tax relief to the tune of Rs 98,000 crore and also Rs 80,000 crore on account of GST rate cuts on 334 commodities," he said. "The effect of this benefit has kept inflation under control despite rise in fuel prices. Inflation was 4.1 per cent in Vajpayee government, 5.8 per cent in UPA-1, 10.4 per cent in UPA-2 and in current NDA around 4.5 per cent average."