Enough scope for govt to cut fuel tax by 4.50 a litre: ICRA
The government can reduce fuel taxes by Rs 4.50 a litre and still keep revenue at last year’s level as the expected rise in consumption will make up loss of extra income from higher levies imposed last year, Moody’s investors service company ICRA said in a note on Friday.
New Delhi: The government can reduce fuel taxes by Rs 4.50 a litre and still keep revenue at last year’s level as the expected rise in consumption will make up loss of extra income from higher levies imposed last year, Moody’s investors service company ICRA said in a note on Friday.
Such a tax cut will reduce pump prices and lower CPI (consumer price index) inflation by 10 basis-points, ease pressure on household budgets to allow a faster revival in consumer sentiment and give RBI’s monetary policy headroom to support a revival in growth, the note by ICRA chief economist Aditi Nayar said.
Here’s how ICRA worked out the math. Petrol consumption is projected to post annual increase of 14% and diesel 10% in 2021-22 on the low base of 2020-21. But compared to 2019-20, sales are expected to be nearly 7% higher for petrol and about 3% lower for diesel. The increased sales will push up government’s aggregate fuel tax revenue by 13%, or Rs 40,000 crore, to Rs 3,60,000 crore in the current fiscal from Rs 3,20,000 estimated in 2020-21. If the government gives up the Rs 40,000 crore extra income, it can reduce pump prices by Rs 4.50 a litre but still have earnings at last financial year’s level.
The Centre raised excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May last year when oil prices collapsed due to the pandemic.
