January 22 2019
‘No excise cut till oil breaches target’
22 May 2018

FinMin official says Centre has internal target for oil prices; industry warns of economic slowdown

The government has an internal target for oil prices above which it may cut excise duties on petrol and diesel to ease the burden on consumers, but this level had not yet been breached, according to a senior official in the Finance Ministry.

Petroleum Minister Dharmendra Pradhan had on Sunday said that ‘various alternatives are being looked at’ by the government to mitigate the pain of price increases. Petrol and diesel prices in Delhi on Monday hit record highs of ₹76.57 and ₹67.82 per litre, respectively.

“The government has an internal target for oil prices over which it will decide to take action on excise duties, but that level has not come yet,” the Finance Ministry official told The Hindu. “But at the same time, States can also play their part by reducing their VAT on fuel. Anyway, with excise duty, States get 42% of collections through devolution.”


The excise duty on petrol is ₹19.48 per litre, which works out to 25.4% of the retail price of petrol in Delhi, the reference market for the country. The State VAT on the fuel, including VAT on the dealers’ commission, is ₹16.28 per litre, which is 21.3% of the retail price. Together, the two taxes make up almost 50% of the retail selling price of petrol. The situation is similar for diesel.

‘No GST for fuels’

The official added there was no plan to include petroleum products in the Goods and Services Tax, either.

Economic Affairs Secretary Subhash Chandra Garg had on Friday said the fact that excise duties have not been cut even when oil prices had touched $80 a barrel should be an indication of the government’s policy regarding the tax.

Industry bodies have also spoken out on the need for an excise duty cut, with the Federation of Indian Chambers of Commerce and Industry (FICCI) issuing a statement to on Monday.

“Unless swift action is taken to address the situation, economic growth will again head towards a speed-breaker,” Rashesh Shah, president of the FICCI said in the statement. “Amongst the most immediate actions that can be taken by the government is to bring down the excise duty on fuel.”

“As per some estimates, every ₹1 per litre cut in excise duties results in potential revenue losses of ₹130 billion [0.1% of GDP],” Mr. Shah added. “On the positive side, GST collections are edging up and if the government focuses on increasing disinvestment proceeds, revenue losses from excise can be mitigated. Going forward, the government should also work with the States to bring petrol products under the GST regime.”



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