The economic crisis triggered by the Covid-19 pandemic andsubsequent pressure on revenues may again push the Centre to raise excise dutyon petrol and diesel.
Sources indicated that another Rs 3-6 per litre increase inexcise duty on petrol and diesel may come soon if the government felt the needto mobilise more resources to finance additional economic recovery packages tofight Covid-19 related disruptions.
This level of increase could provide government additionalrevenue to the tune of Rs 60,000 for full year. In the balance period, about Rs30,000 crore could be mobilised.
An internal examination to look at duty structure on the twoproducts is on and exact timing of the announcement may be finalised soon,sources indicated.
Government wants that any duty hike on petrol and dieselshould not result in an increase in the retail price of the two products as itwould not be popular with the consumers besides the increase could haveinflationary implications on the economy.
Experts said that current juncture would be ideal for anexcise duty on petrol hike as petrol and diesel prices have not been revisedfor the past almost a month even though global crude prices have softened andreached about $ 40 a barrel from a month ago high of over $ 45 a barrel.
In March, the government had taken Parliamentary approval toraise special additional excise duty on petrol to Rs 18 per litre and on dieselto Rs 12 per litre but did not change the levy then. In May, it raised specialadditional excise to Rs 12 on petrol and to Rs 9 on diesel. This leaves thegovernment with the space to increase excise duty on petrol by a further Rs 6per litre and on diesels by Rs 3 per litre. This option is being examined now.
For consumers, any further increase in duty should notimpact much as retail prices may be left unchanged or marginally increased aslower oil prices would allow for absorbing any increase in price.
However, a further increase in taxes on fuel would make theproduct most taxed globally. The current taxes account for close to 70 per centof the price of petrol and diesel. With any further increase in duty, thiscould reach 75-80 per cent level.
Higher retail price is not an option for the government atthis juncture as it could push inflation.
With increased excise duty on petrol and diesel thegovernment is already set to increase in oil revenue by close to Rs 1.75 lakhcrore this year. This is in addition to over Rs 2 lakh crore it collects frompetroleum products as annual excise revenue.
Centres fiscal situation is stretched this yeardue to Covid-19 related disruptions and additional commitments to states overGST compensation shortfall. The fiscal deficit is already estimated at a highof 8 per cent of GDP for FY21.