Centre cuts excise duty on fuel by Rs 1.50 per litre, Oil companies to absorb Re 1 per litre

The reduction excise duty will come immediately into effect once it has been officially notified by the OMCs.

New Delhi: Concerned over the spike in fuel prices, the government on Thursday announced to cut excise duty on petrol and diesel by Rs 1.50 per litre. Briefing media on the revised excise duty, Finance Minister Arun Jaitley said that  Oil Marketing Companies (OMCs) will absorb Re 1 per litre on fuel.

Jaitley has urged the state to take the reduction excise duty forward. “Excise duty will be reduced by Rs 1.50 and OMCs will absorb 1 rupee. So, a total of Rs 2.50 will be reduced on both diesel and petrol. We are writing to the state governments that as the central government is cutting Rs 2.50 on both petrol and diesel, they do the same,” he added.

The finance minister said that the impact of excise duty cut this year will be Rs 10,500 crore.

Almost half of the fuel price is made up of taxes. The centre levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy value added tax (VAT) - the lowest being in Andaman and Nicobar Islands where a 6 percent sales tax is charged on both the fuels.

Jaitley said that the new excise duty will come immediately into effect once it has been officially notified by the OMCs.

Mumbai has the highest VAT of 39.12 percent on petrol, while Telangana levies the highest VAT of 26 percent on diesel. Delhi charges a VAT of 27 percent on petrol and 17.24 percent on diesel.

The central 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 installments 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.

While a cut in excise duty that the central government levies will impact fiscal deficit, states like Bihar, Kerala, and Punjab are not in a position to cut sales tax (or VAT), experts believe. Rajasthan, Andhra Pradesh and Karnataka are among the handful of states which have reduced VAT.

Since mid-August, the petrol price has risen by Rs 6.86 a litre and diesel by Rs 6.73 - the most in any six-week duration after the daily price revision was introduced in mid-June last year.

Petrol prices were Thursday hiked by 15 paise a litre and diesel by 20 paise, according to price notification of state-owned oil firms. The hike pushed petrol price in Delhi to an all-time high of Rs 84 per litre and diesel to Rs 75.45. Rates of subsidised domestic cooking gas, too, have breached the Rs 500-mark for the first time.

With PTI Inputs