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12 May 2020

Excise Duty On Petrol: Impact Of Hike On Petrol & Diesel Prices

Record excise duty hike on Petrol & Diesel in India. And, a cursory view of IOCL stock.

Critics of American President Donald Trump say that he has got only one solution for all the problems, ‘Tariffs’. It has been seen many times that whenever the country needs to solve something, the first thing that Trump comes up with is laying a tariff. This is somewhat similar to the excise duty levied on petrol and diesel in India. Government every now and then increases the excise duty to generate more revenue. Now, it has set a world record!

Yesterday, once again excuse duty was hiked. This hike made India a country which charges the highest amount of taxes in the world on fuel. Now, India charges close to 70% tax of the price of fuel! By the way, it was the road cess hike (by Rs. 8 on both fuels) which did the major damage. Besides this, additional excise duty was hiked by Rs. 2 per litre on petrol and by Rs.5 on diesel. However, the hike shall not be passed on to consumers. The state owned companies have been asked to set off the hike against their gains.

What Does This Mean?

It is being speculated that government would earn additional Rs. 1.6 lakh crores from this hike. By the way, did you know how much would 1 litre of petrol cost if the excise duty, VAT and dealer commission is removed? It would cost Rs. 18.28 only! (in Delhi). Out of these components, excise duty benefits the central government, VAT goes to the state government and dealer commissions benefit petrol pump owners.

In case you were thinking that why aren’t we getting the petrol and diesel at reduced prices (since crude oil prices have fallen)? Here’s your answer. Whether it’s the central government, state government or dealers, none of them want to give up on their revenue. In fact, they definitely want more revenue. However, talks are on regarding bringing the petrol and diesel under GST. But, even if that happens the result on our pockets can not be commented upon with surety.

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