Center could cut gasoline and diesel taxes ahead of election

With four states and one Union territory subject to the polls as of the end of the month, there is speculation that the government can control fuel prices to provide respite for consumers. Government sources said consultations were underway between the Center and the states to reduce taxes on gasoline and diesel.

Soaring fuel prices were one of the main polls used by opposition parties in poll-linked states to corner the BJP.

Public sector fuel retailers also appear to be easy on pricing, even though Brent has topped $ 70 a barrel. Prices at the pump were unchanged for nine days.

Fuel prices have risen steadily in recent months, breaking the psychological barrier of Rs 100 / liter in states like Rajasthan and Madhya Pradesh. Diesel sells for Rs 80 / liter nationwide, increasing transportation costs.

Fuel calculation

Taxes on gasoline and diesel are an important source of revenue for the Center and state governments. Following the Covid-19 pandemic and the lockdown that followed, generating revenue has become relevant for states.

The total revenue generated from fuel taxes for the Center and the States amounts to Rs 5.5 lakh crore per year.

If the fuel is subject to GST, the Center and the States will suffer losses in the order of Rs 2.5 lakh crore per year, as the highest tax slab under the tax regime is 28%.

The question is: who will bear the loss?

Finance Minister Nirmala Sitharaman said she understands the need of the country’s consumers “but there is a” dirty condition “before the government.”

“Whatever tax the government collects, 41 percent of it goes to the states. It’s not just about the cessation. You have the excise duty of the center. Then you have the VAT of the States, ”she said.

She said that the way to find a solution to this problem is for the Center and the States to have a dialogue.

The impact of Covid-19

With the world on lockdown, the price of international benchmark Brent crude hit an all-time low of $ 19 per barrel in April 2020.

In order to push up crude prices amid falling demand, the Organization of the Petroleum Exporting Countries (OPEC) cut oil production by 9.7 million barrels per day in May 2020.

Saudi Arabia has also decided to cut production by 1 million barrels per day until February and March of this year in order to stimulate demand. This led to a rise in prices, with crude selling at $ 65.09 a barrel on February 18.

Why has there been a surge in oil prices?

Ras Tanura, the world’s largest crude oil export facility in Saudi Arabia, was attacked by a drone, with a missile landing near a residential complex near the storage facility.

The attack was carried out by Houthi rebels and although it did not impact oil supplies, the price of Brent, which has already been on the rise since October, rose further to 70.7 dollars per barrel. The rise in prices came from concerns about the security of the country’s crude oil supply.

In written responses to a series of questions about rising fuel prices in Lok Sabha, Petroleum Minister Dharmendra Pradhan said: “The prices of gasoline and diesel have been determined by the government as of June 26, 2010 and October 19, 2014 respectively. “

“Since then, the public sector petroleum marketing companies (OMCs) have made the appropriate decisions on the pricing of gasoline and diesel based on the international prices of their products, the exchange rate, the tax structure, the domestic freight and other cost items, ”he said.

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