Center increases fuel tax again, but has no impact on consumers

NEW DELHI: The Center woke up late Tuesday night Special tax in gasoline and diesel, the second increase in just over a month, was aimed at absorbing the benefit of a sharp drop in oil prices in the past two months. But there will be no impact as the state administration has been asked to adjust the impact against its considerable margin.

Taxes on gasoline have been increased by Rs 10 per liter and on diesel by Rs 13. The cessation of the highway and infrastructure on both fuels is now Rs 8 per liter, while the special excise tax as now is Rs 2 for a liter of gasoline and Rs 5 for diesel.

The Centre had raised Special tax on petrol and diesel by Rs 3 a litre on March 14, which was expected to yield Rs 39,000 crore additional annual revenue. This time too, there was no impact on consumers as the oil companies absorbed the tax. Pump prices were, in fact, reduced by a few paise the next day.

Since the Rs 3 tax increase, retailers have held the price line for 50 days, even though the average cost of crude purchased by state refineries has fallen 32% during this period from $ 30.59 per barrel on 16 March, the day after prices were revised, to $ 20.66 today. This has resulted in a margin of Rs 13-14 per liter for retail refiners, who have been holding it back to offset their inventory losses. This has now been absorbed by the government.

The duty hike had included Rs 2 a litre increase in special additional Special tax and Re 1 in road and infrastructure cess. This hike took the special additional Special tax to the maximum permissible limit in law - Rs 10 in case of petrol and Rs 4 in case of diesel.

The government had subsequently amended the law for securing enabling powers to raise Special tax on petrol and diesel by Rs 8 per litre each. Finance minister had moved an amendment in the Finance Bill 2020 to raise the limit up to which the government can raise special Special tax on petrol and diesel to Rs 18 and Rs 12, respectively. The Bill was passed without debate.

Several states have exploited retailers' refusal to cut taxes by raising VAT by up to Rs 5 per liter in order to make up for the revenue deficit once sales improve as restrictions are eased. Sales have fallen as much as 60% as the blockade restricted vehicle movement and closed businesses.

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