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The Centre, on Wednesday, finally relented to popular demand by lowering the levy on petrol and diesel by ₹5 and ₹10, respectively, with effect from midnight. Now, it has urged the States to lower Value Added Tax (VAT) to give more relief to consumers.
The Centre charges levy on petrol and diesel which has four components – Basic Excise Duty (BED), Special Additional Excise Duty (SAED), Road and Infrastructure Cess (RIC) and Agriculture Infrastructure and Development Cess (AIDC). Now, with effect from November 4, the Centre has impacted reduction of ₹5 in RIC for petrol to ₹13 from ₹18. Similarly, for diesel, it will be reduced by ₹10 to ₹8 from ₹18. So, the effective Central Excise Duty (including cess) on unbranded petrol, will be ₹27.90, and for unbranded diesel it would be ₹21.80.
‘To keep inflation low’
“The reduction in excise duty on petrol and diesel will also boost consumption and keep inflation low, thus helping the poor and middle classes. Today’s decision is expected to further spur the overall economic cycle,” said the Finance Ministry in a statement.
These reductions have come at a time when crude prices are surging, thus impacting retail prices of petrol and diesel in the country. In almost all States, petrol and diesel prices are ruling over ₹100 a litre. Fuel prices have a multiplier impact as it pushes freight rate, which makes various goods and services costly.
Justifying the higher cut on diesel, the Ministry said that Indian farmers have, through their hard work, kept the economic growth momentum going even during the lockdown phase, and “the massive reduction in excise on diesel will come as a boost to the farmers during the upcoming rabi season”.
The statement also said that States have been urged to commensurately reduce VAT on petrol and diesel to give relief to consumers. It may be noted that the Centre levies duty at the specific rate (which means any change in basic price will not have any impact on collection) and States at ad valorem (a percentage of value comprising base price, plus Central levies). This means change in higher prices of crude will give more money to States.
Now, reduction has been made in cess. This means, there is no change in revenue share implication. The Centre will distribute 41 per cent of ₹12.40 per litre among States for unbranded petrol and ₹9.80 per litre for diesel.
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