No plan to slap new cess on fuels: Thakur

The Centre doesn’t intend to impose any new cess on petroleum products, minister of state for finance Anurag Thakur told the Rajya Sabha on Tuesday, even as calls for a cut in fuel taxes have grown only shriller since prices of petrol and diesel hit record levels in February.

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Asked if the government has any plan to bring petroleum products under the ambit of the goods and services tax (GST) regime, Thakur said any such move will require the GST Council’s recommendation. “So far, the GST Council has not made any recommendation for inclusion of petrol and diesel under GST,” he said.

The Centre levies a total tax — comprising basic excise, surcharge, agri-infra cess and road/infra cess — of Rs 31.83/litre for diesel and Rs 32.98/litre on petrol. In March and May, 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13/litre on petrol and Rs 16/litre on diesel.

As much as 60% of the retail price of petrol — which has crossed Rs 100-mark in some places in Rajasthan, Madhya Pradesh and Maharashtra and is at an all-time high elsewhere in the country — is made up of central and state taxes. Taxes make up for about 56% of the record high retail diesel rates.

Starved of resources in the wake of the Covid-19 outbreak, the Centre has been resisting demands for tax relief from consumers and the Opposition parties. Instead, it’s highlighting the need for coordinated action with state governments that also corner a part of the taxes. However, with global brent crude oil prices topping the level of $70 per barrel on Monday, it might be hard for the Centre to ignore the calls for relief for long.

Economists at SBI in a report stated that retail prices of the two fuels could go down (by around 15-20% from the current levels), if the taxes on these are subsumed in Goods and Services Tax, due to the mitigation of cascading of taxes.

Bank of America (BofA) had earlier estimated that a Rs 5/litre cut in taxes on petrol and diesel to ease pressure on consumers could widen the Centre’s FY22 fiscal deficit by 30 basis points from the estimated level to 7.5% of GDP. The Rs 5/litre tax could reduce Centre’s income from assorted specific levies on auto fuels by around Rs 71,760 crore, it said.

Even though finance minister Nirmala Sitharaman said recently that a decision on bringing the two auto fuels under the GST would be taken closer to the GST Council meeting, the proposal could face resistance from states, which fear further erosion of their autonomous taxation powers due to the move.

Meanwhile, the price of petrol in Delhi stood at Rs 91.17 per litre on Tuesday while diesel was sold at Rs 81.47. In Mumbai, petrol was priced at Rs 97.57, while diesel costs 88.60. However, the prices have not been revised in March.
The government had in the Budget for FY22 introduced the agriculture cess on petrol and diesel at Rs 2.5/litre and Rs 4/litre, respectively.

However, the basic excise duty and special additional excise duty rates were cut on the fuel products to neutralise any extra burden on consumers due to the agriculture cess. The price of Indian basket of crude was $62.16/barrel on March 3, up from $50/barrel in mid-December, supported by global demand recovery and voluntary production cuts from major oil exporting nations.