GovT Recovering Lockdown Losses from Public with higher taxes on Fuel?

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Prices of Petrol and diesel are touching new highs across the country. The retail price of regular petrol hit the three-figure mark on February 17 for the first time when it was hiked by 34 paise to Rs.100.13 a litre in Rajasthan’s Sri Ganganagar, while diesel got dearer by 27 paise to Rs.92.13, according to the data available in Indian Oil Corporation’s website. Petrol price in Anuppur, Madhya Pradesh also crossed Rs. 100 mark reaching Rs. 100.25 per litre on Thursday. Diesel price also stood at Rs. 90.35 per litre in the region.

The petrol price in Delhi was hiked by 34 paise reaching Rs. 89.88 per litre as compared to Rs 89.54 per litre on February 17, according to state-owned fuel retailers. Diesel price in the national capital also touched a new high at Rs 80.27, increasing 32 paise from the previous day.

The difference in prices in states stems from local and VAT taxes imposed in states. The central and state taxes currently account for nearly 61% of the retail price of petrol and around 58% of the retail price of diesel in Delhi. Reportedly the revenues collected by the Centre from the sales of petrol and oil products have nearly doubled since 2014. Excise duty forms the biggest component of the price of petrol and diesel while VAT collected by state governments makes up less than a quarter of the price. The base price of the petrol is less than a third of the price the buyer gets it from the retailer.

Between 2014 and 2020 India has seen a ten times rise in excise duty which now forms a major chunk of petrol and diesel prices. In 2014, the excise duty on diesel was Rs 3.56 and that on petrol was Rs 9.40. And by 2020, the excise duty has increased at least 10 times. The central government has increased the excise duty on petrol to Rs 32.98 per litre from Rs 19.98 at the beginning of the 2020, and increased the excise duty on diesel to Rs 31.83 per litre from Rs 15.83 over the same period.

The price of cooking gas was also hiked by Rs. 50 taking the price per cylinder to Rs. 769 in Delhi and over Rs. 800 in other states. The government has also slashed the subsidy on LPG to Rs. 12,480 crore in budget 2021-22, down from Rs. 25,520.79 crore in the current fiscal year and Rs. 35, 605 crore in the previous year. The government intends to reduce its subsidy burden with gradual increases in prices of subsidised gas cylinders.

The FY21 Economic Survey released ahead of the Union Budget also said the decline in global petroleum prices during lockdown acted as an important fiscal shock absorber during the current financial year. Besides reducing subsidy burden, the government was also able to raise its revenue collection by increasing excise duties on petrol and diesel prices, post lockdown.

Rising petrol and diesel prices over the past few months are generating thousands of crores every month for the government. The rising fuel prices have helped the government cover up the revenue losses incurred during the lockdown last year.

However, the use of these duties on petrol and diesel to boost revenue receipts might come at the cost of higher inflation in the economy.

Oil Minister Dharmendra Pradhan ruled out the possibility of a reduction in taxes on petrol and diesel in order to reduce prices.

Prime Minister Narendra Modi, who is often seen pointing fingers at the opposition, has blamed the previous governments for not focussing on reducing India’s energy import dependence. Instead of focussing on reducing the current burden on the middle class with lower taxes the PM talked about reducing India’s future dependence on energy imports.

With no possible and immediate relief hinted by the Oil Minister or the PM himself the Indian consumers may have to wait until 2025 or 2030 when “40 per cent of all energy will be generated from green energy sources”.

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