All eyes on Budget as NDA faces flak for rising fuel prices

Under attack for rising auto fuel prices, the Narendra Modi Government is considering a cut in excise duty on diesel. But whether it will form part of Finance Minister Arun Jaitley’s maiden Budget remains to be seen.

Declining to speculate on the quantum of cut, Government sources said a reduction in duty is under active consideration. The Central excise duty on diesel is levied at the rate of ₹3.56 a litre (including 3 per cent education cess).

Such a move will result in some respite to users, as the Government has decided to continue with the decision of the Congress-led UPA regime allowing public sector oil retailers to raise diesel prices by 45-50 paise every month. This will be done till the loss incurred on selling the fuel at a controlled price is neutralised.

Petrol is already being sold at market prices.

How it adds up

So, how is the duty added to the retail price? At the dealer end, according to the Petroleum Planning & Analysis Cell (PPAC), diesel in Delhi costs ₹46.41 a litre, excluding excise duty and VAT. But at the retail end, excise duty of ₹3.56 a litre, dealer commission of ₹1.19 a litre, VAT (including VAT on dealer commission) applicable at the rate 12.50 per cent and air ambiance charge at ₹250/kl (0.25/litre) is added. The fuel finally costs ₹57.84 a litre.

“It will be a critical decision for the Finance Minister considering the current state of the economy,” a Government official said, adding that the focus is to cut expenditure and enhance revenue.

The Centre levies customs duty on petrol and diesel at ad valorem rates (percentage of value), while excise duty is levied at specific rates. Currently, the customs duty on petrol and diesel is 2.5 per cent. The excise duty on petrol is levied at the rate of ₹9.48/litre (including education cess).

Diesel consumption

Diesel makes up for 40 per cent of domestic fuel sales. According to PPAC, diesel consumption in May was up 1.3 per cent year-on-year.

Reasons for this marginal rise are slowdown in sales of commercial diesel vehicles, improved power situation, industrial consumers shifting to alternate fuels due to price differential (dual pricing) and increasing fuel prices, and shift in four-wheeler/SUV consumer preference from diesel to petrol-driven vehicles.

Apart from the two central levies — customs and excise duties — various State Governments impose sales tax on petroleum products at ad valorem rates. In other words, when international prices go up, States are the ones which get higher revenue.

On the other hand, debate over including petroleum products within the ambit of the Goods and Services Tax (GST) continues. States want these products to be kept out so that they can raise revenue as and when they wish. The earlier Constitution Amendment Bill talks about keeping petroleum products out of GST, but a final decision is yet to be taken.

(This article was published on July 6, 2014)
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