Government reduces excise duty on petrol and diesel, urges states to slash VAT

The government has reduced the excise duty on petrol and diesel by Rs 5 and Rs 10 respectively, providing relief to the common people who were impacted by the spiraling fuel prices. And now, the state governments have been urged to reduce the value added tax (VAT) on petrol and diesel.

The announcement comes at a time when petrol and diesel prices have been at an all-time high across the country, crossing the Rs 100 mark in all major cities, including the four metros. Petrol prices have risen by about Rs 34 per litre in two years and Rs 26 in a year on a steep climb in global oil prices and taxes. Diesel prices have increased by Rs 29.5 per litre in two years and Rs 25 in a year.

A government source says the annual impact of the cut is seen to be of the order of Rs 1.5 lakh crore with the dent to the exchequer during the remaining part of the current financial year pegged at Rs 62,500-65,000 crore. The source said that if the revenue situation wasn’t comfortable, maybe the government wouldn’t have been in a position to go for this kind of reduction.

According to the Controller General of Accounts, the Centre’s tax revenue jumped 27% during the first half of the current financial year to Rs 10.8 lakh crore, which is 60% of the full year target. There are expectations that the direct tax collections will be higher than the budget estimates. The GST collections are also on the track. In the past couple of months, oil prices and its inflationary impact was a sore point. The government had maintained that inflation numbers were not reflecting the impact of high pump prices.

Excise duty on petrol was hiked from Rs 19.98 per litre to Rs 32.9 last year to recoup gain arising from international oil prices plunging to multi-year low as pandemic gulped demand. The government believes reduction in excise duty on petrol and diesel will boost consumption and keep inflation low – helping the poor and middle classes.

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Meanwhile, multiple states – Uttarakhand, Haryana, Karnataka, Goa, Assam, Tripura, Gujarat, Uttar Pradesh, Manipur, Sikkim, Delhi and Maharashtra have followed the central government’s advice of slashing VAT in an effort to reduce fuel prices.