Govt will gain Rs 1.6 lakh cr from excise duty hike on petrol, diesel

The Union government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record hike in excise duty on petrol and diesel that has pushed the total incidence of taxation on auto fuels to 70 per cent of the price.  Late on Tuesday evening, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low. Petrol price remained unchanged at Rs 71.26 a litre and diesel at Rs 69.39 as State-owned oil firms set off the excise duty hike against gains they accrued from fall in international oil rates. This is the second hike in excise duty in less than two months and will help the government garner over Rs 1.6 lakh crore in additional revenues annually at 2019-20 level of consumption, industry officials said.

Considering the slump in consumption due to travel restrictions imposed by coronavirus lockdown, the gains in the remaining 11 months of the current fiscal year (April 2020 to March 2021) will be close to Rs 1.6 lakh crore, they said. Together with Rs 39,000 crore in annual revenues gained from the March 14 excise duty hike of Rs 3 per litre each on petrol and diesel, the government stands to gain as much as Rs 2 lakh crore. After the excise duty hike, taxes — both central excise and state VAT — make up for 70 per cent of the price of petrol and diesel. A litre of petrol costs only Rs 18.28 per litre in Delhi but after including excise duty (Rs 32.98), dealer commission (Rs 3.56) and VAT (Rs 16.44) the price for consumer comes to Rs 71.26 a litre.

Similarly, a litre of diesel costs only Rs 18.78 but after including excise duty (Rs 31.83), dealer commission (Rs 2.52) and VAT (Rs 16.26), it is priced at Rs 69.39 for consumers. State-owned fuel retailing companies, Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL), had frozen petrol and diesel prices since March 16, anticipating the government move and will now set off gains they accrued from the continuing drop in international oil prices against the excise duty hike. ICICI Securities said the excise duty hike would mean a plunge in gross auto fuel marketing margin by 64 per cent (Rs 12.1 a litre) from Rs 19 on May 5 to Rs 6.9 on May 6.