central government announced a Rs 2.50 per litre cut in petrol and diesel prices after it reduced excise duty by Rs 1.50 a litre
The central government on Thursday announced a Rs 2.50 per litre cut in petrol and diesel prices after it reduced excise duty by Rs 1.50 a litre and asked oil companies to absorb another Re 1.
The price cut would be effective from midnight tonight.
The reduction in excise duty, only the second in four years of BJP-led NDA rule, will dent government revenues by Rs 10,500 crore and was aimed at cooling retail prices that had shot up to an all-time high.
Announcing the decision, Finance Minister Arun Jaitley asked the state governments to match the move with a similar reduction in sales tax or VAT.
The relief to consumers will be in three parts — centre will cut excise duty by Rs 1.5, and oil marketing companies (OMCs) will factor in Re 1 in their pricing, and states have been asked to cut VAT as they have raked in windfall gains due to ad valorem nature of the levy that results in higher realisation whenever rates move up, he said.
“The states’ revenue increases because of increased crude oil prices and hence it is easier for the states to absorb Rs 2.50,” he said.
Following the Centre’s announcement, BJP-ruled Maharashtra and Gujarat – which are among the highest taxing state, announced Rs 2.50 per litre reduction in the VAT.
Jaitley said the total impact of Rs 1.50 cut in excise duty is about Rs 21,000 crore for full year and Rs 10,500 crore the reminder of current fiscal. “So the impact will be Rs 10,500 crore in current fiscal which is only 0.05 per cent of fiscal deficit. Absorbing this Rs 10,500 crore in increased collection and maintaining fiscal deficit I am confident we will be able to do that. We are committed to 3.3 per cent figure, we will maintain that,” he said.
Meanwhile the BJP-government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47 a litre in nine instalments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.