The Centre has room to cut excise duty on petrol and diesel by up to ₹8.5 per litre without impacting its target for revenue from the tax on the two fuels, analysts said.
Petrol and diesel prices hover at a historic high following a relentless increase in rates over the past nine months. There have been calls by opposition parties as well as sections of society to reduce excise duty to ease consumer pain.
“We estimate excise duty on auto fuels in FY22, if it is not cut, at ₹4.35 lakh crore versus budget estimate of ₹3.2 lakh crore.
“Thus, even if excise duty is cut by ₹8.5 per litre on or before April 1, FY22E budget estimate can be met,” ICICI Securities said in a note.
The firm expressed optimism for an excise duty cut given demand recovery, impending privatisation and inflation concerns but expect it to be more modest than ₹8.5 a litre.
Excise duty was raised by ₹13 and ₹16 per litre on petrol and diesel between March and May 2020, and now stands at ₹31.8 on diesel and ₹32.9 per litre on petrol.
The increase was to mop up gains arising from international crude oil prices falling to a two-decade low.
But, with oil prices recovering, it has not yet restored the taxes to their original levels.
“If the cut is more modest... FY22 excise duty will be higher than budget estimate,” ICICI Securities said.
