At a time when people are hurt by rising fuel prices, analysts have said 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.
“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, FY22E budget estimate can be met,” ICICI Securities said in a note.
Analysts 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.
“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 per cent of the retail selling price of petrol and over 54 per cent of diesel.
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 value-added tax (VAT) on the fuel in the country. Between November 2014 and January 2016, the government had raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.
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. The government should consider bringing down excise duty to provide relief to the public.