Duty cuts help bring tax component on diesel below base price after months

New Delhi: For the first time in many months, the excise duty revision on petrol and diesel has reduced the quantum of taxes on the fuels below its base price.

So, now the base price of fuel, particularly diesel, is higher than the total amount of taxes on the product. The situation used to be reverse earlier with value of taxes being more than 100 per cent of the base price of fuels.

As per the latest price build on petrol and diesel given by IndianOil, the base price of diesel in Delhi stands at Rs 49.33 per litre as on November 4 when lower fuel prices became effective after tax cuts by the Centre and the states. But the total tax component over the base price (including Central excise duty and state VAT) stands at Rs 34.48 per litre – a lot lower than earlier level when tax component on the fuel stood at Rs 44.84 a litre at a base price of Rs 41.41 a litre.

In case of petrol, the difference is narrower due to lower cut in taxes by the Centre. Accordingly, the value of taxes on one litre of petrol in Delhi now stands at Rs 51.89 per litre on a current base price of Rs 7.93 a litre. However, the taxes were a lot higher earlier at Rs 55.70 per litre on a base price of Rs 38.93 in July 2021.

The Centre of Tuesday announced a Rs 5 per litre cut in excise duty on petrol and Rs 10 per litre cut in duty on diesel which because effective from the next day. Along with the Centre, several states also reduced VAT of the fuels between Rs 7-17 per litre providing a larger relief to consumer from rising fuel prices.

A Rs 1 cut in duty on petrol and diesel results in annual revenue loss of around Rs 13,000-15,000 for the Centre. The revenue affected is lot lower for states, depending on the quantum of sale fuels. Going by this yardstick, the Centre is set to forego revenue to the tune of Rs 40,000-Rs 45,000 crore in the balance period of FY22 due to duty cuts. The revenue loss will be a bit higher than this level for all states put together due to VAT cuts.

However, for the consumers, the duty cuts have brought a big relief. Fuel prices have largely risen in the current calendar year rising by over Rs 26 a litre since January 1. This has also made several other things expensive for the consumers. The hope is now pinned on further cuts on fuel prices as global oil prices have softened from three year high levels of $86 a barrel.

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