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Fuel price woes | Govt may cut taxes on petrol, diesel ahead of state elections – Moneycontrol

There could be some respite soon for consumers who are reeling under the pressure of skyrocketing petrol and diesel prices. The central government is likely to cut taxes on petrol and diesel ahead of the forthcoming assembly elections in five states if crude oil prices continue the northward march, sources said.

The planned reduction in taxes, if it materialises, would help check the spiralling oil prices in the country.

Assembly elections are scheduled in West Bengal, Assam, Kerala, Tamil Nadu and Puducherry. The polls will get underway on March 27 and the results will be announced on May 2. High oil prices are one of the key poll planks being used by opposition parties in these states to corner the Bharatiya Janata Party.

Even though the model code of conduct of assembly elections took effect on February 26, when the Election Commission (EC) announced the dates of the elections, the sources say that it won’t be a hurdle since the fuel tax reduction would be a national-level decision. Only state-centric announcements are prohibited, as per the election code of conduct.

In this case, the EC can, at the most, prevent the Centre from publicising the tax cut in the states that go to polls.

Currently, central and state taxes make up for 60 percent of the retail selling price of petrol and over 54 percent of diesel.

As per the Indian Oil Corporation website, on March 1, 2021, in Delhi, petrol base price was Rs 33.26/ ltr, fright etc was Rs 0.28/ltr, excise duty was Rs 32.90/ltr, dealer commission Rs 3.69/ltr and VAT was Rs 21.09/ltr (including VAT on dealer commission).

Similarly, on petrol, the base price was Rs 34.97/ltr, freight etc was Rs 0.25/ ltr, excise duty was Rs 31.80/ltr and dealer commission was Rs 11.94/litre.

According to the source, the government has been keenly watching the meeting of OPEC+ (Organisation of Petroleum Exporting Countries). Since OPEC+ decided not to increase oil output, there is little chance of a reduction in oil prices.

Just after the OPEC+ announcement, crude prices jumped by 5 percent, and pressure is mounting on the government to give some relief on prices to consumers.

Since prices are at a record high, a reduction of taxes by one or two rupees would not give much relief to consumers. “The government may cut taxes in such a way that effective relief to the consumers should be at least four to five rupees,” another source added.

But the Centre alone can’t offer that relief. State governments and even oil marketing companies would have to come forward and collectively cut the taxes, and the Centre has already started consultation with states on this issue, the source added.

Officials from the Ministry of Finance and the Ministry of Petroleum have also discussed the matter.

According to an analysis, if the government continues to collect duties at the current level, tax collection will be more than that of the Budget estimates.

In the Budget, the government has estimated tax collection of Rs 3.2 lakh crore in the next financial year from petrol and diesel.