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Mop-up from fuel tax hike may offset other revenue losses

While petrol in Rajasthan’s Sri Ganganagar hit a record Rs 100.42 per litre, in Delhi too it reached a new high of Rs 89.9. Diesel price in Mumbai, too, set a new high of Rs 87.32 a litre.

By: ENS Economic Bureau | New Delhi |
Updated: February 19, 2021 5:56:29 am

Oil marketing companies hiked the prices of petrol and diesel on Thursday for the tenth consecutive day, raising the price of petrol and diesel by 30-34 paise a litre across major metros.

While petrol in Rajasthan’s Sri Ganganagar hit a record Rs 100.42 per litre, in Delhi too it reached a new high of Rs 89.9. Diesel price in Mumbai, too, set a new high of Rs 87.32 a litre. The central government has used excise duty hikes of Rs 13 per litre in case of petrol and Rs 16 a litre for diesel to make up for shortfall in goods and services tax (GST) collections as well as sharp decline in direct tax collections during this fiscal.

Prime Minister Narendra Modi said Wednesday that the middle class would not have been burdened by high fuel prices if previous governments had focussed on reducing India’s dependence on crude oil import. However, another factor behind the fuel price rise has been the sharp rise in excise duties on petrol and diesel last year to make up for shortfall in revenues from other indirect taxes due to lower economic activity during the pandemic.

The Centre will collect an estimated Rs 3.46 lakh crore from excise duties on petrol and diesel this fiscal — 39.3 per cent, or Rs 97,600 crore, more than the FY21 budget estimate (BE) of Rs 2.49 lakh crore.

This sharp rise is going to offset the falls in GST collections as well as customs duty collections for the government, which are estimated to be lower by 25.7 per cent and 18.8 per cent, respectively, compared to the BE. GST mop-up is estimated to be lower by Rs 1.49 lakh crore and customs duty collections estimated to be lower by Rs 26,000 crore compared to the budget estimates for this fiscal.

Direct tax collections are also set to come down, according to the revised estimates (RE) for this fiscal — with corporate tax collections set to be 34.5 per cent lower at Rs 4.46 lakh crore as against Rs 6.81 lakh crore and income tax collections estimated to be 27 per cent lower at Rs 4.59 lakh crore as against Rs 6.28 lakh crore in the BE.

The Centre has already collected Rs 2.36 lakh crore in excise duties in the first nine months this fiscal, despite significantly lower consumption of petroleum products due to travel restrictions imposed to curb the spread of Covid-19 in the first half of FY21.

According to experts, the government’s target for receipts from petrol and diesel sales through excise duties and the newly introduced Agriculture Infrastructure and Development Cess (AIDC) of Rs 3.70 lakh crore can be met even if it rolls back part of the hike in excise duties imposed in 2020.

“… excise on auto fuels would be in-line with FY22 budget estimate of Rs3.7trn even if excise duty is cut by Rs4.75/l from 1-Apr’21,” according to a report by ICICI securities.

Petroleum minister Dharmendra Pradhan has, however, noted in Parliament that there is currently no proposal to cut excise duties on petrol and diesel being considered by the government

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