Reduction of excise duty to bring down the price of petrol by Rs 9.5 per liter and diesel by Rs 7

NEW DELHI: The Center will forfeit Rs 1 lakh crore in tax revenue this fiscal year due to reduction in excise duty. The Ujjwala Consumer Subsidy will entail expenditure of Rs 6,100 crore, Finance Minister Nirmala Sitharaman said when announcing the decisions.
This is the second fee reduction made by the Center in just over six months.
The latest duty reduction will lower the price of petrol by Rs 9.5 per liter and diesel by more than Rs 7, depending on the prevailing state VAT rate, assuming the base rates remain the same . The Center had on November 4, 2021 reduced excise duty by Rs 5 on petrol and Rs 10 on diesel. The latest reduction brought the excise duty back to pre-pandemic levels – rather a few paise lower. As of March 1, 2020, excise duty stood at Rs 19.98 per liter on petrol and Rs 15.83 per liter on diesel. These will. That is now Rs 19.90 and Rs 15.80 per litre, respectively.
The latest fuel excise duty cut comes after the war in Ukraine led to a spike in global prices, which was passed on to consumers, causing petrol prices to rise above the Rs 100 per liter mark and cooking gas cylinders costing over 1,000 rupees in most parts of the country.
The reduction will lower the price of petrol by Rs 9.5 per liter and diesel by more than Rs 7, depending on the prevailing state VAT rate, assuming the base rates remain the same.
The Center had on November 4, 2021 reduced excise duty by Rs 5 on petrol and Rs 10 on diesel. The latest reduction brought the excise duty back to pre-pandemic level – rather lower by a few paise. As of March 1, 2020, excise duty stood at Rs 19.98 per liter on petrol and Rs 15.83 per liter on diesel. These will. That is now Rs 19.90 and Rs 15.80 per litre, respectively.
The reduction in pump prices will be slightly greater in states with higher VAT rates, such as Maharashtra, Rajasthan, MP and West Bengal, than in those with lower tax rates. This is because the gradual decrease in state tax will be greater in high-tax states, because VAT is charged after excise duty, dealer’s commission, and other charges.
In the last round, several BJP-led states had also reduced VAT on motor fuel, leading to a sharper reduction in prices at the pump. Reducing central tax to pre-Covid levels removes one of the opposition’s main arguments for criticizing the government. This will increase the pressure on states that have not cut VAT to match the Nov. 4 excise duty cut to do so this time.
After the excise cut in November, the BJP-led states quickly reduced the VAT. The AAP government in Delhi and the Congress government in Punjab followed suit.

Richard L. Militello