Government continues to raise excise duty on diesel and petrol to take gains from crude price fall

As the budget is nearing, government is hiking excise duties on diesel and petrol for more revenues.

Government has increased excise duties on diesel and petrol for the second successive time in two weeks. Latest is the increase of duty by Rs 2 on diesel and 37 paise on petrol on January 2nd.  

The latest hike is notable for its severe hike on diesel and altogether, the basic excise duty from one litter diesel increases to Rs 7.83 from Rs 5.83.

On the other hand, the basic excise duty from petrol increases marginally from Rs 7.36 to Rs 7.73. In effect the basic excise duty from diesel becomes higher than that from petrol.

But after including the special excise duties and additional duty of excise which are added to the basic excise duties, the total excise duties from petrol goes to Rs 19.73 for petrol and Rs 13.83 for diesel.

The sharp increase in diesel duty is rewarding for the government as diesel sale is higher compared to that of petrol. According to the tax department estimates, the latest two duty hike on petrol and diesel may giver additional revenues of Rs 10000 crores.

In the two months from November 2014, excise duty on petrol and diesel increased four occasions. Interestingly though the crude price remained at the six year low during these months as well as reaching an eleven year low by the end of the year in the international market, only marginal price cut was made by companies. Instead, the government has increased duties to take gains from the crude price fall.