The re-jig that the government has announced in the Budget to do with the excise duties and cess on petrol and diesel will not affect the end-consumer, but will greatly benefit the Centre as opposed to the States, according to tax analysts.
The Budget has announced the abolition of the ₹ 6 per litre additional excise duty on petrol and high-speed diesel, and also reduced the basic excise duty on branded and unbranded petrol and diesel by ₹2 per litre each.
However, these reductions are offset by the introduction of a ₹ 8 per litre road and infrastructure cess on petrol and high speed diesel.
Centre to benefit
“While this will not have any impact on the end-consumer since the net effect is the same due to the introduction of the cess, the move will benefit the Centre,” said Pratik Jain, Leader of Indirect Tax at PwC India.
“This is because 42% of taxes like excise duty have to be shared with the states, but cess remains with the Centre in entirety,” Mr. Jain added.
However, this does not mean that the government can use these funds for any of its other schemes. The nature of a cess is such that it can be only be used for the stated purpose.
“There are very few products under excise ambit,” Rashmi Deshpande, Associate Partner at Khaitan & Co, said. “
When you put a cess, then you have a clear idea that the amount will be used only for that subject. Considering that the Union government wants to invest in development of the infrastructure sector, this cess will be an additional source of income for this purpose,” Mr. Jain added.
Consumers and tax analysts alike were expecting an excise duty cut in the Budget to offset the rising oil prices.
