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Centre, states may cut taxes on fuel

To prevent rising crude oil prices from hurting consumers and fuelling inflation, the government is working on a comprehensive “rescue package” that includes a significant reduction in central excise duties and sales tax levied by states on petroleum products. Anupama Airy reports. Different states, one problem

business Updated: Apr 20, 2012 08:33 IST
Anupama Airy

The government is thinking of a cushion for you to soften the blow of high oil prices.


To prevent rising crude oil prices from hurting consumers and fuelling inflation, the government is working on a comprehensive “rescue package” that includes a significant reduction in central excise duties and sales tax levied by states on petroleum products.

Taking a cue from the Goa government — which reduced sales tax and brought down petrol prices by Rs 11 a litre — and following the ultimatum served by state-owned oil companies on Tuesday over hiking petrol prices by a steep Rs 8 a litre, the government plans to to ask Congress-governed states to cut sales tax on petrol and diesel. The central government is also preparing to cut excise duty on petrol and diesel. http://www.hindustantimes.com/Images/Popup/2012/4/20_04_biz1.jpg

The measures are expected to shield consumers from an across-the-board steep hike in fuel prices (petrol, diesel and cooking gas) planned by oil companies. Hectic parleys are on within the government “to see how best the impact of the fuel price hike on the consumers can be minimised,” a government official told Hindustan Times.

“As part of the strategy being worked out, Congress-governed states will be first asked to cut sales tax on petrol and diesel,” the official said, adding, the central government is also working out a simultaneous cut in excise duties on petroleum products.

“Once these states cut taxes, we can ask our allies to implement this and the remaining states will be forced to follow suit,” he said.

On every litre of petrol, states charge taxes anywhere between Rs 10 and Rs 19 depending on the rate of sales tax.

On every litre of diesel, states are levying a tax of Rs 4.5-9 a litre. Similarly, on every litre of petrol, the central government is charging Rs 15.6 as central taxes and duties including an excise duty of Rs 14.8. On every litre of diesel, central taxes and duties amount to Rs 3.0 including an excise duty of Rs 2.For instance, out of Rs 65.6 that you pay for a litre of petrol in Delhi, as much as Rs 26.5 goes as central and state taxes. Likewise, out of Rs 40.9 per litre price of diesel in Delhi, you pay Rs 7.4 as taxes.

Both Centre and states rake in huge revenues from taxes and duties levied on petrol and diesel. The petroleum sector’s annual contribution to the central and state exchequer is expected to be a staggering Rs 2.5 lakh for 2011-12.

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