International oil prices have been highly volatile. India imports more than 80% of its crude oil. There might be a possibility that a fall in oil prices will lead the Government to raise Taxes.
For 2018, crude oil imports were pegged at 217.08 MT amounting to $114.5 billion while Domestic crude oil production was 34.2 MT.
The current breakdown of Petrol/Diesel
According to figures released by Indian Oil Corp. Ltd (country’s largest refinery) released on Monday.
|Petrol (INR per Liter)
|Diesel (INR per Liter)
|Value Added Tax (VAT) – by Delhi state government
Global oil prices declined by 30% on 9th of March, 2020!
Taxes on petroleum & petroleum products are an important source of revenue for both the Union government and State Government.
Devendra Kumar Pant, chief economist at India Ratings and Research said that the government might tinker with excise collections. This would be in response to the fiscal challenges originating from slower growth and tax collections. He added, “With crude prices falling by 30% and slower growth of tax collections, a few states have already increased VAT rates on petrol and diesel; as a result, consumers may not get entire benefits of low crude prices.”
With an increase in excise duty on petrol & diesel prices, fuel retailers might not be able to reduce the prices for their consumers. This will limit the extent to which the consumers will benefit from low crude oil prices.
Madan Sabnavis, chief economist at Care Ratings said, “The fall in crude oil prices means lower revenue for the government at a time it is working hard to meet budgetary targets.”
The excise duty on auto fuel has been raised several times since 2014. This was solely to raise resources for welfare schemes. The government, in October 2018 made a INR 2.5/liter cut in petrol and diesel prices. This was done by lowering excise duty and asking state-run fuel retailers to take a hit of INR 1 on every liter of auto fuel. But in the July 2019 Budget, it raised back the taxes. FM Nirmala Sitharaman, in her first budget raised the special additional excise duty & road and infrastructure cess by INR 1/liter each on petrol and diesel.
There is a tendency that the Government might hike the current tax rates to meet tax revenue targets. As a result consumers might not get the entire benefits of low crude prices.
But will the government ever pass on the benefits to the consumer?
No matter what the Government decides, the likelihood of consumers benefiting from the same is really low unless the oil prices stabilize.