petrol price rose to an all-time high of .87.60 a litre

Fuel prices on February 28:

Revenue receipts from Union excise duties have proved to be the silver lining in the 2021-22 Budget, as far as central taxes are concerned. Not only does the government hope to collect, as per Revised Estimates (RE), more than what its Budget Estimates (BE) projected in 2020-21, the 2021-22 (BE) numbers project union excise duties to be the only tax head where 2021-22 (BE) numbers are greater than 2020-21 (BE) numbers. To be sure, 2021-22 (BE) collections are expected to be lower than 2020-21 (RE) collections on this head. Oil minister Dharmendra Pradhan on Wednesday ruled out any cut in excise duty. His remark came on a day the petrol price rose to an all-time high of .87.60 a litre in Delhi. The diesel rate rose to .77.73 per litre in the city.

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1. Rising fuel tax rates contributing to higher excise duty collection

After most indirect taxes were subsumed into the Goods and Services Tax (GST) post 2017, the bulk of union excise duties are receipts from taxes on petroleum products, primarily petrol and diesel. In 2021-22, the reason for a sharp jump in union excise duty collections is not a spike in consumption of petrol-diesel but an increase in tax rates. As oil prices fell, the government chose to keep retail prices of fuel roughly constant, and enhanced excise duties – a move that shored up revenue receipts.

However, the use of these duties on petrol and diesel to boost revenue receipts might come at the cost of higher inflation in the economy as oil prices strengthen, provided the government does not cut excise levies. But doing so may hit revenue receipts. Here are four charts which explain this trade-off.

2. Tax component of petrol-diesel prices has been increasing in the post-Covid-19 period

The petroleum ministry provides disaggregated data on the various components of the price of petrol and diesel in the country. This shows that the tax component of both petrol and diesel prices increased significantly in the post-Covid-19 period. Government taxes accounted for.37.8 and .28 per litre in petrol and diesel prices on April 1, 2020 (a few days after India declared a lockdown to slow the pandemic). This has increased to .52.9 and .43.1 by February 1, 2021.

The 2021-22 Budget has not reduced duties on petrol and diesel. What it has done instead is shift the special excise duty to the newly created head of agriculture, infrastructure and development cess; .2.5 per litre on petrol and .4 per litre on diesel will now go to this. There is no change in retail prices.

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