The government has room to cut excise duty on petrol and diesel by up to Rs 8.5 per litre without impacting its target for revenue from the tax on the two fuels, analysts said. “We estimate excise duty on auto fuels in FY22 (April 2021 to March 2022), if it is not cut, at Rs 4.35 lakh crore versus budget estimate of Rs 3.2 lakh crore. Thus, even if excise duty is cut by Rs 8.5 per litre on or before April 1, 2021, the FY22E budget estimate can be met,” ICICI Securities said.
Excise duty was raised by Rs 13 and Rs 16 per litre on petrol and diesel between March 2020 and May 2020 and now stands at Rs 31.8 on diesel and Rs 32.9 per litre on petrol. The increase in excise duty was to mop up gains arising from international crude oil prices falling to a two-decade low. But, with oil prices recovering, it has not yet restored the taxes to their original levels.
“If the cut is more modest, which we expect, FY22 excise duty will be higher than the budget estimate,” ICICI Securities said. Central and state taxes make up for 60 per cent of the retail selling price of petrol and over 54 per cent of diesel.
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The rates of regular petrol had last month crossed the Rs 100-mark at a few places in Rajasthan and Madhya Pradesh, which levy the highest value-added tax (VAT) on the fuel in the country. Between November 2014 and January 2016, the government had raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.
