Fuel focus: OMCs to lift retail tariff freeze on diesel and petrol

The center could also urge states to lower their sales tax/VAT on automotive fuels, as in November 2021

With the prospect of an Indian basket of crude oil averaging more than $100 a barrel for a long period of time, the government could announce moderate tax cuts on petrol and diesel over the next three to four days. As oil marketing companies (OMCs) are likely to phase in retail tariffs on the two auto fuels starting next week in an effort to reduce their under-collections, the tax cut could ease the burden on consumers and help curb runway fuel. inflation.

OMC’s under-recoveries on petrol and diesel have risen to unsustainable levels of `10-12 per liter in the past 15 days.

“It’s a possibility (tax cut) and the matter is under investigation,” an official told FE, on condition of anonymity.

It is a difficult choice for the government to either cut excise taxes on diesel and gasoline and forgo huge amounts of tax revenue, let the oil marketing companies increase the sales prices of auto fuels, or choose a judicious combination of both steps.

The Center could also urge states to reduce their sales tax/VAT on automotive fuels, as in November 2021.

Center, which cut taxes on gasoline and diesel by Rs 5 per liter and Rs 10 per liter respectively on Nov. 4, most states and UnionTerritories lowered their tax rates on the two fuels. While state taxes are levied on an ad valorem basis, unlike the Center’s specific taxes, state/UT tax cuts amounted to Rs 8.7/litre for gasoline and Rs 9.52/litre for diesel .

Auto fuel prices, officially deregulated, have not changed since November 4, 2021. Prices have been suspended in the context of the parliamentary elections for five states that closed on Monday.

The under-recovery since November 4, 2021 is expected to reach Rs 42 per litre. India’s crude oil basket had risen to $121 a barrel on March 8. On November 4, the day the price freeze came into effect, the Indian basket was about $83 a barrel.

Although the government does indeed have some room for tax cuts on car fuels, given the ‘conservative revenue estimates’ for the coming year, when the impact on revenues will be more felt.

Currently, the Center’s taxes on petrol and diesel are Rs 27.9/litre and Rs 21.8/litre respectively. Of this, the special additional excise duty is `11/litre and `8/litre on petrol and diesel, respectively.

Icra estimates that a rollback of the car fuel tax to pre-pandemic levels before April 1, 2020, if followed by the budgeted increase of Rs 2/litre each on unmixed fuel in H2 FY23, the revenue from these taxes in 2023 would be Rs 2, 4 lakh crore, a good `92,000 croreless thanthe budget estimate (BE).

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