The Centre will earn Rs 1.87 lakh crore in FY21 from the Rs 13-16/litre additional cess and surcharges imposed on auto fuels in March 2020 and later in the month of May of the same year. Going by the projection of 8% rise in fuel demand in FY22, the Centre’s incremental income from the two auto fuels could be over Rs 2 lakh crore, if it chooses not to reduce the tax rates.
On Tuesday, retail petrol price in Delhi touched an all-time high of Rs 89.29/litre, rising by Rs 4.69/litre since the same day a month ago, as OMCs gradually increased the base-price of the products amid rising international crude prices.
The base price (price to the dealer) comprises 36% of the retail petrol rates in Delhi, while state VAT makes up 23% and central taxes account for 37% of the final fuel price paid by the end user. Freight charges and dealer commission (around 3%) are the other components of the final price.
The government estimates petrol and diesel consumption in FY21 to be 101.6 million tonne, down 9.8% from FY20.
Despite lower demand, the Union government’s income from taxes on petrol and diesel in set to rise a whopping 82% to Rs 4 lakh crore in the current fiscal. In FY22, the revenue could be Rs 4.3 lakh crore, of which over Rs 49,000 crore will come from the agriculture infrastructure development cess imposed by the government through FY22 Budget on February 1.
As per Budget FY22, the revised estimate on revenue from ‘Union Excise Duties is set at Rs 3.61 lakh crore, as against Rs 2.67 lakh crore collected in FY20. The Budget estimate for FY22 is Rs 3.35 lakh crore. Given the estimates based on consumption, the RE for FY21 could be surpassed. Also, it seems the government has factored in the possibility of cuts in tax rates for next year’s estimate.
In March, 2020, the special additional excise duty (surcharge) on auto fuels was increased by Rs 2/litre and road cess was raised by Rs 1/litre. Subsequently in May, 2020, road cess on petrol and diesel was increased again by Rs 8/litre, while the surcharge was hiked by Rs 2/litre for petrol and Rs 5/litre for diesel. As a result, the Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.83/litre for diesel and Rs 32.98/litre for petrol.
To offset the effect of the new cess on end consumers, the surcharge on both petrol and diesel rates have been reduced by only Rs 1/litre while basic excise duty rates now stand reduced at Rs 1.4/litre for petrol and Rs 1.8/litre for diesel. Till the imposition of the agri-infra cess, the basic excise rates were Rs 4.83 (diesel) and Rs 2.98 (petrol) since February, 2018.
While the cesses and surcharge are not sharable with the states, they get 42% of the auto-fuel excise duty income from the basic excise duty component. Of course, the states levy their own VAT on petrol and diesel, which goes exclusively to the state coffers, but current high prices limit the scope of increasing VAT further. The states gain from the higher Central taxes as their tax is levied on a base that includes the Central taxes. The states’ tax revenue from VAT on the fuels have fallen 17.6% annually to Rs 78,164 crore in the first half of FY21.