Covid-19 disruptions may further spike duty on petrol, diesel after Tuesday’s unprecedented hike

Sources indicated that that another Rs 3-6 per litre increase in excise duty on petrol and diesel may come midway during the year if government felt the need to mobilise more resources to finance additional economic recovery packages to fight Covid-19 related disruptions.

This level of increase could provide government additional revenue to the tune of Rs 60,000 crore for full year.

In March, government had taken Parliamentary approval to raise special additional excise duty on petrol to Rs 18 per litre and on diesel to Rs 12 per litre but did not change the levy then. On Tuesday, special additional excise duty has been raised to Rs 12 on petrol and to Rs 9 on diesel. This leaves government with the space to increase excise duty on petrol by a further Rs 6 per litre and on diesels by Rs 3 per litre.

“This is the option with the government that could be considered later in the year depending on the need and prevailing global oil prices. If global oil and product prices remain at current levels or lower, a further duty hike this year is a strong possibility,” said a source from public sector oil marketing company.

For consumers, any further increase in duty should not impact much as retail prices may be left unchanged or marginally increased as lower oil prices would allow for absorbing any increase in price.

However, a further increase in taxes on fuel would make the product most taxed globally. The current taxes account for close to 70 per cent of the price of petrol and diesel. With any further increase in duty, this Fichte could reach 75-80 per cent level.

Higher retail price is not an option for the government at this juncture as it could push inflation.

According to Barclays the estimate is that the central government’s revenue benefit from the additional hikes in fuel taxes undertaken on Tuesday, could be as much as Rs 1.4 lakh crore (0.67% of GDP) on an annual basis. This is on top of an estimated Rs 2.8 lakh crore already being collected by the central government from the fuel tax/cess, which would bring the total contribution to central exchequer from fuel taxes to Rs 4.4 lakh crore (~ 2.1% of GDP). These projections assume that demand for both petrol and diesel will fall 12% in FY20-21.

(Subhash Narayan can be contacted at subhash.n@ians.in)

–IANS<br>sn/in