The government has decided to raise excise duty on petrol and diesel significantly, by up to Rs 8 per litre, to mobilise additional resources that would be required to fight the Covid-19 pandemic.
As per the amendments introduced in the Finance Bill 2020, the Finance Ministry has proposed to raise special additional excise duty on petrol to Rs 18 per litre from present Rs 10 per litre and on diesel to Rs 12 per litre from the present Rs 4 per litre. The said changes have been made by amending the eighth schedule of the Finance Act 2002.
It is not clear whether the entire Rs 8 per litre increase in special additional excise duty would be used as cap to raise duties up to that level or the government would notify entire increase at one go.
If this happens, the retail price of petrol and diesel could shoot up by Rs 5-6 per litre as remaining amount may be absorbed by public sector oil marketing companies who have been daily reducing the price of two petroleum products in line with global fall in oil prices.
Sources said that a notification with changes in duty structure on petrol and diesel may come later in the evening.
For the government, a Rs 8 per litre rise would a bonanza that would increase its annual excise collections from the sector by a whopping Rs 1,20,000 crore.
This, government officials feel, along with savings of over $15-20 billion in oil import bill in FY21, will provide enough room to bring the economy back on track after Covid-19 fight.
But any resultant increase in retail price of the two products could have a negative impact on the economy already facing a slowdown. Price rise of auto fuels could have a multiplier effect raising prices of several essential products and services and pushing up inflation.
In February, the consumer price inflation had fallen to 6.58 per cent but this could begin to rise again if petrol and diesel prices are raised.
On March 14, the government had raised excise duty on petrol and diesel by Rs 3 per litre, the highest in the five years, taking advantage of the low global oil prices to boost its coffers. Through this increase, the centre could now gain in excess of Rs 45,000 crore revenue for the full year.
However, it spared consumers from any immediate increase in retail price of the two auto fuels that may be adjusted later keeping any increase to the minimum. Petrol prices fell 13 paisa per litre to Rs 69.87 a litre and diesel by 16 paisa to Rs 62.58 in Delhi on Saturday.
As per a notification issued by Central Board of Indirect Taxes and Customs, special duty on petrol and diesel was hiked by Rs 2 per litre to Rs 10 a litre and Rs 4 a litre respectively.
Additionally, road and infrastructure cess on the two products had also been raised by Rs 1 per litre to Rs 10 per litre, effectively increasing the central duty on petrol and diesel to Rs 3 per litre. The new rates were effective from March 14.
The increase of Rs 8 per litre in excise duty will be the highest in the two tenures of the NDA government. It will follow Rs 3 per litre increase in duty on March 14, and another Rs 2 per litre increase in excise/cess proposed in 2019 Union Budget.
At present, the total central excise duty on petrol stands at Rs 22.98 per litre and on diesel, at Rs 18.83 per litre. With Rs 8 per litre increase, these would increase substantially to Rs 30.98 per litre on petrol and Rs 26.83 on diesel. In addition, states also levy VAT on the two products. Petrol and diesel has not been so far included under GST.