Indian Government hikes excise duty by Rs 10 on petrol, Rs 13 on diesel

• Special additional excise duty hiked by Rs 2 on petrol, Rs 5 on diesel

• Road and Infrastructure cess hiked by Rs 8 on petrol and diesel

• Aim is to shore up revenue at a time when COVID-19 has hit the economy hard

Starting May 5, the Delhi government raised the Value Added Tax (VAT) levied on petrol and diesel in the region, and now, the central government has announced its decision to hike the excise duty on petrol and diesel sold all across India in a bid to strengthen its revenue, which has been impacted by the novel coronavirus (COVID-19) pandemic.

In a notification issued late yesterday, the Central Board of Indirect Taxes and Customs hiked the special additional excise duty by Rs 2 on every litre of petrol, and Rs 5 on every litre of diesel. Additionally, the Road and Infrastructure cess has also been hiked by Rs 8 on every litre of petrol and diesel, which means the total hike in excise duty is Rs 10 for every litre of petrol and Rs 13 on diesel.

This increase in excise duty doesn’t cause a change in fuel prices at the pump, as with this move, the government is mopping up the gains made possible by the drop in global crude prices and bolstering its revenue at a time when the COVID-19 pandemic has hit the economy hard. The rise in excise duty is expected to generate an additional Rs 1.6 lakh crore in revenue for the Centre. 

Crude prices worldwide have dipped to record lows, but the Indian consumer will continue to pay the same for fuel as before, with a greater amount of the price being paid as tax. With the latest hike, cumulative excise duty levied on petrol totals up to Rs 32.98, and Rs 31.83 on diesel. A litre of petrol costs Rs 71.26 in Delhi at present, and a litre of diesel costs Rs 69.39, so excise duty alone now accounts for nearly 46 percent of fuel prices.

This is the second excise duty hike on petrol and diesel in the span of two months. Accounting for the revenue that both hikes are estimated to generate in total, the government is likely to net close to Rs 2 lakh crore in FY2021.