Petrol, diesel price rise: Room to cut auto fuel taxes by Rs 4.50/litre, says Icra

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If the Centre wants revenue from these taxes to be kept at FY21 levels, it can support a reduction in cesses by Rs 4.5/litre each on petrol and diesel, Icra opined.

With the rise in demand for petrol and diesel, the Centre can cut auto fuel taxes by Rs 4.5/litre and still keep its revenue from these sources intact at levels recorded in FY21, analysts at Icra said. Despite demand for petrol and diesel falling 10.6% annually in FY21, the Centre’s income from taxes on auto fuels rose a whopping 55% y-o-y to Rs 3.5 lakh crore in the previous fiscal because in March and May, 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13/litre on petrol and Rs 16/litre on diesel.

Considering the low base of FY21, Icra estimates petrol demand in the ongoing fiscal will rise by about 14% y-o-y, while diesel by around 10%. If taxes are kept unchanged, higher demand is seen to increase the aggregate revenue generated from auto fuels cesses by about 13% in FY22, the rating agency said. If the Centre wants revenue from these taxes to be kept at FY21 levels, it can support a reduction in cesses by Rs 4.5/litre each on petrol and diesel, Icra opined.

“Higher consumption of fuels should support a rise in the indirect taxes levied on them, affording a window for a partial reversal in the cess hikes that were imposed last year,” Icra chief economist Aditi Nayar said, adding that “such a cut in cess rates would offer some relief to household budgets and ease the inflationary pressures related to the rising global crude prices”.

On Friday, petrol price in Delhi was at an all-time high rate of Rs 97.76, rising Rs 4.55 a litre since the same day a month ago, as state-run oil marketing companies gradually raised the base price of the products amid rising international oil prices. The base price comprise 39% of the retail petrol rates in Delhi, while state VAT makes up 23% and central excise account for 34% of the final fuel price paid by the end consumer. Freight charges and dealer commission make up for the rest of the price.

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