Centre losing 2.2L cr in 2 fuel duty cuts: FM Nirmala Sitharaman

Updated on May 23, 2022 07:04 AM IST

The central government on Saturday decided to reduce RIC on petrol from ₹13 a litre to ₹5, and on diesel from ₹8 to ₹2, which became effective from Sunday.

The VAT on petrol in Delhi (including VAT on dealers’ commission) on Sunday came down to <span class='webrupee'>₹</span>15.71 a litre from <span class='webrupee'>₹</span>17.13 before the tax cut, Indian Oil Corporation data showed. (HT PHOTO)
The VAT on petrol in Delhi (including VAT on dealers’ commission) on Sunday came down to 15.71 a litre from 17.13 before the tax cut, Indian Oil Corporation data showed. (HT PHOTO)
ByRajeev Jayaswal

The revenue loss of 2.2 lakh crore due to two rounds of duty cuts on petrol and diesel will be borne entirely by the central government, Union finance minister Nirmala Sitharaman said on Sunday, refuting accusations by the Opposition that the reductions were made on the portion of levies that is shared with the states.

“The excise duty reduction of 8/litre on petrol and 6/litre on diesel (effective from today) has entirely been made in Road & Infrastructure Cess (RIC). Even in November ‘21, the reduction of 5/litre in petrol and 10/litre in diesel was entirely made in RIC,” the finance minister said in a Twitter thread on Sunday.

Revenue from the roads and infrastructure cess is not shared with the states.

After the government announced significant cuts in fuel taxes on Saturday to tame inflation, the Opposition had alleged that reducing central levies on auto fuels would proportionately shrink the states’ share in the central divisible pool, where 41% of the collected revenue goes to them.

Also read: Sitharaman shares ‘useful facts’ on fuel price cut as Oppn says stop fooling public

“Basic ED (excise duty) which is sharable with states has not been touched,” Sitharaman tweeted. “Therefore, the entire burden of these two duty cuts (made in Nov, 21 and yesterday) is borne by the Centre.”

The central government on Saturday decided to reduce RIC on petrol from 13 a litre to 5, and on diesel from 8 to 2, which became effective from Sunday.

“Although RIC is part of the non-divisible pool, the revenue collected through this cess is utilised by the Centre in infrastructure development in states,” a government official said, requesting anonymity.

The duty reduction made on Saturday has a revenue implication of 1 lakh crore a year for the Centre, the finance minister said. “The duty reduction made in November’21 has an implication of 1,20,000 cr a year for Centre. Total revenue implication to Centre, on these two duty cuts is thus 2,20,000 cr a year,” she said.

Implying that the duties and cess on auto fuels helped providing relief to the poor and farmers, and the revenue thus generated has been used in developmental work, Sitharaman cited the Reserve Bank of India’s data for a comparative analysis.

Also read: Chidambaram hits out at minister over VAT cut request on fuel prices. Then admits mistake

“RBI data shows total developmental expenditure incurred by the @PMOIndia @narendramodi Govt during 2014-22 was 90.9 lakh crore. In contrast, only 49.2 lakh crore was spent on developmental expenditure during 2004-14,” she said.

“The expenditure incurred by our Govt under @PMOIndia @narendramodi includes 24.85 lakh crore spent so far on food, fuel and fertiliser subsidies and 26.3 lakh crore on capital creation. Over the 10 years of UPA (United Progressive Alliance led by the Congress), only 13.9 lakh crore was spent on subsidies,” she added.

Experts, however, said there are some indirect implications on states’ revenues even when the Centre reduces non-shareable excise components because value-added tax (VAT) charged by states on petrol and diesel are according to the value of the fuels.

Accordingly, the VAT on petrol in Delhi (including VAT on dealers’ commission) on Sunday came down to 15.71 a litre from 17.13 before the tax cut, Indian Oil Corporation data showed. Similarly, diesel VAT in Delhi fell from 14.12 per litre to 13.11 a litre on Sunday.

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