Indian government to rake in over Rs 2 lakh crore extra by hiking fuel taxes in FY 2020-21

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The Centre will earn Rs 1.87 lakh crore in FY21 from the Rs 13-16/litre additional cess and surcharges imposed on auto fuels in March 2020 and later in the month of May of the same year. Going by the projection of 8% rise in fuel demand in FY22, the Centre’s incremental income from the two auto fuels could be over Rs 2 lakh crore, if it chooses not to reduce the tax rates.

Petrol prices in India are close to breaching the Rs 100 a litre mark while diesel is inching closer to Rs 90 a litre.

The base price (price to the dealer) comprises 36% of the retail petrol rates, while state VAT makes up 23% and central taxes account for 37% of the final fuel price paid by the end user. Freight charges and dealer commission (around 3%) are the other components of the final price.

The government estimates petrol and diesel consumption in FY21 to be 101.6 million tonne, down 9.8% from FY20. Despite lower demand, the Union government’s income from taxes on petrol and diesel in set to rise a whopping 82% to Rs 4 lakh crore in the current fiscal. In FY22, the revenue could be Rs 4.3 lakh crore, of which over Rs 49,000 crore will come from the agriculture infrastructure development cess imposed by the government through FY22 Budget on February 1.

In March, 2020, the special additional excise duty (surcharge) on auto fuels was increased by Rs 2/litre and road cess was raised by Rs 1/litre. Subsequently in May, 2020, road cess on petrol and diesel was increased again by Rs 8/litre, while the surcharge was hiked by Rs 2/litre for petrol and Rs 5/litre for diesel. As a result, the Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol.

To offset the effect of the new cess on end consumers, the surcharge on both petrol and diesel rates have been reduced by only Rs 1/litre while basic excise duty rates now stand reduced at Rs 1.4/litre for petrol and Rs 1.8/litre for diesel. Till the imposition of the agri-infra cess, the basic excise rates were Rs 4.83 (diesel) and Rs 2.98 (petrol) since February, 2018.

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