Room for excise duty cut on fuel without hurting revenue: Analysts

New Delhi, March 3

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.

Petrol and diesel prices hover at a historic high following a relentless increase in rates over the past nine months. There have been calls by opposition parties as well as sections of society to the government to reduce excise duty to ease consumer pain. “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, FY22 Budget Estimate can be met,” ICICI Securities said in a note.

It expressed optimism for an excise duty cut given demand recovery, impending privatisation and inflation concerns but expected it to be more modest than Rs 8.5 a litre. 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% of the retail selling price of petrol and over 54% of diesel.

Petrol is priced at Rs 91.17 per litre in Delhi and diesel comes for Rs 81.47.

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 VAT on the fuel. — PTI

Prices at historic high

• Petrol and diesel prices hover at a historic high following a relentless increase in rates over the past nine months
• There have been calls by opposition parties and sections of society to the government to reduce excise
• Even if excise duty is cut by Rs8.5 per litre on or before April 1, 2021, FY22 Budget Estimate can be met, says ICICI Securities