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The Finance Minister, in her quest to raise revenue for the exchequer, has called upon the government’s favourite cash cows – petrol and diesel. The prices of these fuels will increase by more than ₹2 a litre. That’s because the Budget has increased two taxes — the Special Additional Excise duty, and also the Road and Infrastructure Cess — by ₹1 a litre each on petrol and diesel. Simply put, the Budget has increased total taxes on petrol and diesel by ₹2 each. Add to this taxes levied by the states (value added tax) and the price of these fuels at the pump will be up by more than ₹2 a litre.
This price hike will more than offset the excise duty cut of ₹1.5 a litre on these fuels that the Centre had effected in October 2018.
At that time, rapidly rising global crude oil prices, the rupee’s rout, and high excise and VAT combined together were propelling petrol and diesel prices to all-time highs, and the Centre under pressure moderated the excise duty.
Prior to the October 2018 cut, the Centre had increased excise duty on petrol and diesel nine times between November 2014 and January 2016 (when oil prices were falling), and had cut the duty just once in October 2017.
In effect, between January 2014 and January 2018, excise duty on petrol was raised by ₹10 a litre and that on diesel was increased by ₹11.77 a litre.
In effect, when oil prices were falling, the Centre chooses to pocket most of the gains through tax hikes and does not pass on the benefit to consumers. This seems to be the case in the latest hike in taxes too. During election season though, there has been a trend of the Centre not raising taxes and the oil companies also going slow on price hikes — likely at the diktat of their major shareholder, the government.
Both the Centre and the States depend heavily on contributions from the petroleum sector.
In 2018-19, ₹3,65,113 crore, or 28 per cent of the Centre’s revenue receipts and ₹2,30,325 crore or 11 per cent of the States’ revenue receipts came from the petroleum sector.
No surprise then that petrol and diesel, along with crude oil, natural gas and aviation turbine fuel (ATF) remain outside the GST net.
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