Time ripe to cut excise duty on petrol, diesel

Richa Mishra Shishir Sinha New Delhi | Updated on May 06, 2018

Did the government let go of an opportunity to reduce the excise duty on petrol and diesel? It is possible.

“Wait till May 12, by then there will be more clarity on US sanctions on Iran. Back home also, the Karnataka elections will be done,” said an industry tracker.

While politics may have stopped the government from cutting excise duty on the two fuels, those within the industry believe this is the right time to do so because of the comfortable fiscal situation. Besides, the government does not want an inflationary spike now as it will hurt the investment cycle.

“If the government wanted it could have easily reduced the excise duty as the crude pricing during the week gone by had given it the opportunity. Oil retailers were making at least 27 paise more on a litre and about 20 paise more on petrol,” said an industry tracker.

However, all may not be lost yet as GST is yielding results, and a cut still may not adversely impact the fiscal math. There was a period when GST collections were uncertain, with the government depending heavily on oil money to fund its schemes.

“With the wonderful GST performance that will further improve, and CBDT experiencing a huge increase in tax base, we are in the realm of increasing fiscal space. Given the most likely higher fiscal space that we have, I think we should not permit oil to give us an inflationary spike. Therefore, cut excise duties at this time, but it should also be matched by the State governments,” said Rajiv Kumar, Vice-Chairman Niti Aayog.

To build a consensus on a duty cut, Kumar felt that the government should call a meeting where the Centre and States could come to an agreement.

“My understanding of the whole thing is that it is an artificially high price and, therefore, in all likelihood, cannot be sustained for much longer. There is lack of predictability in oil prices; therefore, we should not be looking at a long-term high oil scenario,” said Kumar.

Excluded products

Meanwhile, the Petroleum and Natural Gas Ministry has asked the Finance Ministry to bring excluded petroleum products under GST. Since the products are outside GST, oil retailers do not get any input tax credit.

It is estimated that PSU OMCs are losing around ₹4,200 crore annually towards non-availability of proportionate input tax credit of GST paid on procurement of inputs, input services and capital goods.

There is no proposal at present to consider bringing them under GST, the Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi, said.

“Whenever the GST Council takes a call on this, there will be additional taxes over and above GST rates. Wherever petrol and diesel are under GST, they are and in the highest tax bracket. Also, they attract additional levy over the prevalent GST rate,” he said.

The highest tax rate under GST is 28 per cent and the maximum cess permissible is 25 per cent. It means the maximum rate of GST on petrol-diesel could be 53 per cent.

For example, the current petrol price structure in Delhi shows that Central and States taxes together make 99 per cent of the price charged to dealers, while for diesel, it is over 65 per cent.

Therefore, the Centre and States will need to evolve a mechanism to see that there is no revenue loss after bringing auto fuel under GST. After all, 40 per cent of the State and Central revenues come from petroleum products.

There is a basic principle for fixing GST on goods /services — fitment. The effort is to ensure that the Centre or States do not lose revenue. Simply put, tax authorities apply a ‘Revenue Neutral Rate’ and put the goods/services in a tax bracket, which is close to the sum of the Centre and State levies prior to the introduction of GST.


Published on May 06, 2018

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