India cuts ‘central excise duty’ on petrol and diesel by Rs 5 and Rs 10; several states reduce state taxes as well

India finally announced reduction in the ‘central excise duty’ on petrol and diesel by Rs 5 and Rs 10 respectively. The tax cut will bring down the central taxes on petrol and diesel to Rs 27.9 per litre and Rs 21.8 per litre, respectively, enabling even higher reductions in the retail prices of the two auto fuels, as state-level ad valorem taxes are levied on a price inclusive of the central levies.

Retail price of petrol in Delhi crossed the Rs 110-mark, and that in Mumbai came close to touching Rs 120 per litre mark,  as state-run oil marketing companies (OMCs) gradually increased the base-price of the product amid rising international crude rates.

The surge in crude prices are likely to continue till the end of the year with the OPEC+ countries showing no signs of increasing production over the pre-determined levels till December, even as global crude demand is on the rise. In the absence of tax cut, the prices of both petrol and diesel would have risen further till the end of the 2021.

Since the Modi government first took over in May 2014, there have been as many as 12 instances of increases in the Centre’s auto fuel levies. As a result, the Centre’s taxes on petrol and diesel are at Rs 32.9/litre and Rs 31.8/litre, respectively, at present, against the rates of Rs 9.48/litre and Rs 3.56/litre that prevailed in early FY15. Moreover, the shareable part of the taxes has shrunk. For instance, while as much as 41% of the central taxes on diesel were shared with the states under the relevant formula in FY15, just 5.7% was shared with the states. Clearly, the restructuring of tax rates has benefited the Centre disproportionately.

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