No divestment, don’t fret! Rs 1.Four lakh crore earned from taxes on gasoline, diesel

The coronavirus pandemic and the collapse in crude oil prices tarnished the government’s plan to divest Rs 2.1 billion in FY21. The government had planned to sell stakes in public sector entities such as Air India and BPCL to achieve the goal. However, the government has made up for this shortcoming with an additional 1.4 billion rupees from higher taxes on gasoline and diesel.

A Crisil research report said the excise tax rose by Rs 13 to 32.98 per liter in 2020. With VAT, the government is expected to generate additional income of 1.4 billion rupees in the current financial year, despite gasoline and diesel, sales volume declined by 10-16%.

“Taxes now account for over 60% of the retail sales price of gasoline, compared to 47% in 2019. Given the government needs to find the money to boost public spending – and also encourage the use of cleaner fuels – this is it.” unlikely the gasoline tax will be lowered to previous levels anytime soon, “says Hetal Gandhi, director of CRISIL Research.

The VAT on gasoline is 19.32 rupees per liter. Other levies include a dealer commission of around Rs 3.67 per liter.

In 2018 and 2019, the share of excise tax on one liter of gasoline was 47%. The government had raised the excise tax by 3 rupees per liter in March 2020 and another 10 rupees per liter in May 2020 when global crude oil prices were below production costs. Brent crude had fallen to a two-decade low of $ 23 in April 2020 and had rebounded to $ 63.6 in early January this year after a roller coaster ride earlier this year. Today, Brent crude prices are at $ 54.78 a barrel. On Monday, fuel prices rose 25 pa per liter, and retail gasoline prices rose to a record high of Rs 84.95 per liter in New Delhi, Rs 86.39 in Calcutta, Rs 91.56 in Mumbai and Rs 87.72 Rs in Chennai. Today gasoline costs Rs 91.80 per liter in Mumbai, Rs 85.20 per liter in Delhi and Rs 87.85 in Chennai.

Crisil analysts note that the difference between Brent prices and fuel prices in Indian retail was small in 2018 and 2019. When Brent was $ 56.5 per barrel in December 2018, retail gasoline prices in India were Rs 70.6 per liter. When Brent rose to $ 65.9 per barrel for a year after stable prices, retail prices also rose to 74.7 rupees per liter. Gasoline retail prices had topped 80 rupees per liter for the first time in October 2018 when Brent crude oil rose to $ 80.5 a barrel. While Brent prices ranged from $ 40 to $ 43 for most of 2020 after the global lockdown, retail gasoline prices in India rose to over Rs 80 per liter in August.

In the 2021 calendar, Crisil Research expects the price of Brent crude oil to rise 23% year over year to an average of $ 50-55 per barrel from $ 42.3 per barrel in 2020, reflecting a gradual recovery in global economic activity is. This would represent an increase of 4% over the average closing price of December 2020.

According to Crisil, the rise in gasoline prices due to a sharp rise in taxes in the recent past will increase the acceptance of vehicles running on compressed natural gas (CNG).

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