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Explained: Why govt has raised excise duty cap on fuel amid coronavirus scare

The change in the cap, as per the amendments in the Finance Bill passed in the Parliament Monday, will enable the government to raise duties on petrol and diesel by another Rs 8 per litre each.

By: Explained Desk | New Delhi | Updated: March 24, 2020 4:32:11 pm
The slump in global crude oil prices enables the government to raise these duties substantially without immediately putting the burden on the consumer. (Bloomberg Photo)

In a move which would help the government to raise excise duty on fuel further in future, the government has raised the cap on special additional excise duty on petrol and diesel to Rs 18 and Rs 12 per litre, respectively, as per the amendments in the Finance Bill passed in the Parliament Monday. Last year’s Finance Act had put the cap at Rs 10 per litre for petrol and Rs 4 per litre for diesel. The change in the cap will enable the government to raise duties on petrol and diesel by another Rs 8 per litre each.

Why the hike?

Every rupee hike in excise duty is expected to yield roughly Rs 13,000-14,000 crore annually. The slump in global crude oil prices enables the government to raise these duties substantially without immediately putting the burden on the consumer. But there is expected to be a demand slowdown for fuels with a nearly country wide lockdown in the wake of coronavirus. With airlines, railways, trucks and passenger cars going off the roads, petrol, diesel and ATF (aviation turbine fuel) consumption is expected to fall drastically.

Precious Duty hikes

On March 14, the Centre had increased the excise duty on petrol and diesel by Rs 3 a litre each. An additional Re 1 per litre was also levied on both petrol and diesel under the road and infrastructure cess (RIC). The excise duties on petrol and diesel include basic excise duty, special additional excise duty, and road and infrastructure cess, which is levied as additional excise duty.

Post the hike, the total excise duty on petrol had risen to Rs 22.98 per litre and that on diesel has risen to Rs 18.83 per litre. Central and state taxes account for 54 per cent of the price of petrol and 45 per cent of the price in Delhi after the hike.

Precarious fiscal situation

Government is increasing duties on petrol and diesel to raise revenues in view of a tight fiscal situation. Slump in global crude oil prices, alongside possibility of a global economic recession, has forced the government to look for avenues to raise revenues to support growth. With major companies going for production shut downs, industry players have suggested the government to boost fiscal stimulus in the wake of demand collapse triggered by the coronavirus.

Earlier, Saudi Arabia had triggered the crash in prices by announcing a sharp increase in oil production after Russia declined to reduce oil supply to contain a fall in oil prices due to declining demand in a meeting of petroleum exporting countries.

Here’s a quick coronavirus guide for you to stay updated: Who all should be tested for Covid-19 and when? | How should you quarantine yourself? | How often (and how) should you clean your home? | What is the Janata Curfew announced by PM Modi? | Who are restricted from coming to India, and from when? | How long can the virus live on surfaces or in air around you? | Still more Coronavirus Q&A Explained news here

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