The recent decline in oil prices has given state governments an opportunity to hike duties on fuel to raise tax revenue sources amid increased expenditure and loss of tax income due to the nationwide lockdown to curb the spread of COVID-19.
On Thursday, Haryana became the fourth state to hike duties on fuel. The state government decided to partially restore the VAT rate on the sale of diesel and petrol with an increase of Re 1.1 and Re 1 per litre, respectively.
As per the proposed amendment, the rate of tax will be restored to 25 percent (effective rate 26.25 percent with surcharge) on petrol and 16.40 percent (effective rate 17.22 percent with surcharge) on diesel.
Amid criticism, the Haryana government also hiked bus fare by 15 paise per km. For ordinary, luxury and super luxury buses in the state, fares have been hiked to Rs 1 per passenger per km from Rs 85 paise earlier, to partially meet the increased cost of operation of buses, an official statement said.
Assam government said that the increase was temporary to make up for the over 50 percent revenue loss that it predicts due to a decline in international oil prices. The state government said it receives an average of Rs 166 crore per month as royalties for oil from ONGC and Oil India Limited, which are estimated to fall to Rs 50 crore.
It is likely that more states will follow suit.
The international benchmark for oil prices, Brent crude, has fallen about 60 percent in 2020, while retail prices of petrol and diesel in India, which are revised daily, have remained unchanged since 14 March. Since retail prices in petrol pumps have not shown a similar correction, it allows room for state and central government to raise duties on fuel to increase revenue while keeping the final consumer prices fairly same.
Central government may also hike duties
This hike may also be seen at the central government level as Finance Minister Nirmala Sitharaman had moved an amendment to the Finance Bill, 2020 in March enabling powers to raise excise duty on petrol and diesel by Rs 8 per litre each in future. The bill was passed less than a week before the nationwide lockdown was declared to contain COVID-19.