Datanomics: Excise duty maths likely to skew if fuel duty cuts stay

Prolonged fuel duty cuts could derail FY27 excise projections, with petroleum taxes - a key revenue pillar - facing a potential ₹1.32 trillion hit

The government has slashed Union excise duty on petrol and diesel for a fortnight and exempted 40 petroleum products from Customs duty for three months. It has also imposed export duty on diesel and aviation turbine fuel. According to finance ministry officials, the net impact of the revisions is a revenue loss of ₹5,500 crore to the exchequer (₹7,000 crore loss from excise cuts offset by ₹1,500 crore gains from export duty). Customs duty changes may result in a revenue loss of ₹1,800 crore over three months.

 

Peaks and troughs 

If these measures continue through FY27, the net loss to the exchequer from excise duty changes on petroleum would be ₹1.32 trillion — roughly one-third of the Budget estimates of ₹3.9 trillion. This would bring excise collections below FY23 levels, ceteris paribus. The impact on Customs duty would be far smaller. If continued, the hit would be about ₹7,200 crore for FY27, or 2.6 per cent of the Budget estimates of ₹2.7 trillion.

Losing ground 

The divergence reflects the outsized role of petroleum in excise collections. Fuel accounts for nearly 90 per cent of total excise duty, as most goods were subsumed under the goods and services tax (GST) from July 2017, leaving only a few items — including petroleum, tobacco and cigarettes — under excise. In contrast, petroleum has a small share in Customs duty collections — about 6 per cent in FY25.