The Finance Ministry is considering cutting excise duties on petrol and diesel to cushion the impact of record-high domestic prices, said three government officials close to the discussions to Reuters.
Fuel prices in India have peaked to new all-time highs across the country.
While rising international crude oil prices have contributed to the increase, high taxes have been adding to the burden.
After the COVID-19 outbreak, international oil prices had fallen to a two-decade low as all major economies announced lockdown measures. Both central and the state government took the opportunity to increase taxes on the retail price of fuel in order to make up for tax revenue losses in the nationwide lockdown.
The central government raised excise duty on petrol by Rs 13 per litre and that on diesel by Rs 16 a litre in two tranches in 2020 (in March and May). With this, the total incidence of excise duty on petrol rose to Rs 32.98 per litre and that on diesel to Rs 31.83 a litre.
State and local governments also announced similar hikes in sales tax or VAT. While, central excise duty alone makes up for 39% of the petrol price and 42.5% of diesel price, state and local taxes pile on to this burden. At present, of the retail price paid by consumers in India at fuel stations, roughly 60% of the retail price accounts for taxes.
Last month, when asked about the relief on a steep rise in fuel prices, finance minister Nirmala Sitharaman called it a 'Dharma Sankat' situation and the Centre and states need to figure out a way to bring rates to reasonable levels.
However, in the last two weeks, high fuel prices have prompted five states (West Bengal, Rajasthan, Assam, Nagaland and Meghalaya) to cut state-level taxes on petrol and diesel.