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As higher taxes take fuel prices to record high, Govt says ‘working out on formula’ to reduce rates

Amid the “crisis situation” created by rising fuel prices, BJP President Amit Shah on Tuesday said that the Centre taking the issue of oil prices seriously, and that it is working out on a formula to reduce the rates.

Edited by: India TV Business Desk, New Delhi [ Updated: May 22, 2018 22:54 IST ]
As higher taxes take fuel prices to record high, Govt says

As higher taxes take fuel prices to record high, Govt says ‘working out on formula’ to reduce rates 

Amid the “crisis situation” created by rising fuel prices, BJP President Amit Shah on Tuesday said that the Centre taking the issue of oil prices seriously, and that it is working out on a formula to reduce the rates.

“The government is taking the matter of oil prices seriously. Petroleum minister will have a meeting with the officials of the oil companies tomorrow. We are working out a formula to reduce the prices,” said Shah while addressing a press conference. 

The statement comes in the wake of petrol and diesel prices shooting up at a record rate, touching an all-time high of Rs 76.87 and Rs 84.80 in Delhi and Mumbai respectively on Tuesday. 

The day-to-day rise in crude prices is seen as a result of the production cuts by oil exporters, reduction in supplies from Venezuela and the US exiting the 2015 Iran nuclear deal. 

While the government blames crude prices for this upsurge in petrol and diesel rates, various reports suggest that the high taxes are to be equally blamed for it. The last time petrol crossed Rs 76 per litre, in 2013, it was 40 per cent costlier before taxes. 

When compared to 2013, the central tax on diesel has increased more than three-fold (from 3.56% then to 15.33% now), while on petrol it has gone up by two times (from 9.48% then to 19.48% now), according to a report published in Times of India on May 22. 

The Times of India report further says that the Centre earned 2.7 lakh crore from taxes and duties on petroleum products in 2016-17, which is 117 per cent higher than the 1.3 lakh crore it earned in 2014-15, when NDA came to power.   

Another report suggests that crude oil rate (per barrel) was Rs 5747 in 2013, which is Rs 4245 in 2018. Moreover, the Dollar exchange has risen from 54.29 in 2013 to 65.13 in 2018. 

Amid this “crisis situation”, Oil Minister Dharmendra Pradhan has indicated that there is scope for relief. “The Centre is sensitive towards the rising fuel prices. Various alternatives are being explored. I hope something will work out soon,” he said on Sunday. 

Meanwhile, PTI cited a senior official saying on Tuesday that the government may not rely only on cutting excise duty, which makes up a fourth of the retail selling price. 

"Rising fuel price is a crisis situation for government and it has to be handled with combination of steps. Finance ministry is consulting the petroleum ministry on rising crude prices," he said. 

More than a week after the state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have touched record highs. Petrol costs Rs 76.87 per litre in Delhi and diesel costs Rs 68.08 a litre. In last nine days, petrol price has risen by Rs 2.24 a litre and diesel by Rs 2.15. 

Rates vary from state to state depending on the incidence of local sales tax or VAT. The prices in Delhi are the cheapest among all metros and most state capitals. 

Refusing to discuss steps under consideration, the official said the government has to be mindful of its fiscal maths while dealing with the option of cutting excise duty. 

"We cannot rely on excise duty cut alone, although I am not ruling out a possibility of cutting excise duty. We have to be mindful of any fiscal impact of any excise cut on fuel," the official said. 

Both the Centre and states, whose VAT makes up for 20-35 per cent of the retail cost and have gained from the rising oil prices, need to take measures, he said.

"Some steps to deal with rising oil prices are likely to come this week," he added. 

The rupee, which has fallen to 16-month low of 67.97 against the US dollar, is also playing a role in high oil bill, he said. 

The Central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up. 

In Delhi, VAT on petrol was Rs 15.84 a litre, and Rs 9.68 on diesel in April. Today it is Rs 16.34 on petrol and Rs 10.02 a litre on diesel. 

Every rupee cut in excise duty on petrol and diesel will result in a revenue loss of Rs 13,000 crore. 

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre. 

Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT. Just four of them -- Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh -- reduced rates while others including BJP-ruled ones ignored the call. 

In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government's excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.

Spiraling petrol and diesel prices are burning a hole in people’s pocket with no signs of recovery. This is revived the demands of inclusion of automobile fuel under the GST, with the India Inc asking the government to take immediate measures. 

India's top industry bodies Assocham and Ficci have said it is important the government cut excise duty on petrol and diesel and also consider including automobile fuel under the GST for a long-term solution. 

Both the bodies have said a weakening rupee would increase the country's import bill and would have a cascading impact on inflation, thereby posing a risk to the country's growth trajectory. 

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