NEW DELHI: Ministry of Finance is considering cutting special taxes in gasoline and diesel to cushion the impact of record domestic prices, said three government officials close to the discussions.
The doubling of the price of crude oil in the last 10 months has contributed to registering fuel prices at gas stations in India. But taxes and the tariffs represent about 60% of the retail price of gasoline and diesel in the country, the world’s third largest consumer of crude oil.
As the coronavirus pandemic hit economic activity, the government increased taxes on gasoline and diesel twice in the past 12 months to increase fallen tax revenues rather than pass on the benefits of low oil prices for the year. passed on to consumers.
The Finance Ministry has started consultations with some states, oil companies and the Oil Ministry to find the most effective way to reduce the tax burden on consumers without affecting federal finances, the sources said.
“We are discussing ways to keep prices stable. We will be able to analyze the issue in mid-March, ”said one of the sources.
The sources, who asked not to be identified because the deliberations are private, said the government wants oil prices to stabilize before cutting taxes, as it does not want to be forced to change the tax structure again, in case the crude oil prices continue to rise.
Finance Minister Nirmala Sitharaman He recently said: “I cannot say when we will reduce fuel taxes, but (the) center and the states have to talk to reduce fuel taxes.”
The Finance Ministry and the Petroleum Ministry did not respond to an email requesting comment.
High fuel prices have prompted some Indian states to cut state taxes on gasoline and diesel to control prices.
“There is an expectation that OPEC + will agree to ease restrictions on oil production, we expect oil prices to stabilize after their decision,” said this source.
India has called on OPEC + to ease production cuts as higher crude prices are affecting demand for fuel in AsiaIt is the third largest economy and they are contributing to inflation.
High fuel prices could also affect Modi’s popularity ahead of state assembly elections in four states in March and April.
The central government is already facing its biggest political challenge in years with tens of thousands of farmers protesting against three farm laws passed in 2020.
The central and state government together raised about 5.56 trillion rupees ($ 75.22 billion) in revenue from the oil sector in the fiscal year ending March 31, 2020, according to government data.
In the nine months of this fiscal year (April-December 2020), contributions from the sector were around 4.21 trillion rupees, despite a significant decline in local demand for fuel, the data showed.
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