In response to declining crude oil prices and the looming threat of a global recession, the Indian government has moved to reduce recently levied cesses and duties on diesel and aviation turbine fuel (ATF). The move also includes an abolishment of cess on petrol exports. This article delves into the specifics of the tax reductions, their initial imposition, and the context in which these decisions were made.
Understanding the Tax Reductions
The modifications in taxes primarily concern a windfall tax—a relatively higher tax rate imposed on substantial profits of certain companies or industries. The principal alterations include:
– The removal of additional excise duties, previously amounting to Rs 6 per litre, on petrol exports.
– A reduction in duties on diesel exports from Rs 13 per litre to Rs 11 per litre.
– A decrease in the special additional excise duty (also known as windfall tax) on domestic crude sold to domestic refineries at international parity prices, lowered from Rs 23,250 per tonne to Rs 17,000 per tonne.
– A reduction in the export duty on ATF from Rs 2 to Rs 4 per litre.
The Reason Behind the Initial Tax Increase
On July 1, 2022, the Indian government imposed an additional excise duty on exports of petrol and diesel due to fuel shortages across the nation. Starting June 2022, numerous fuel pumps reported deficiencies, leading to many shutting down. The government responded by increasing duties, ensuring adequate fuel availability and compelling oil marketing companies to keep their pumps operational.
Context: Global Crude Prices and Domestic Impact
At the time of the tax increase, worldwide crude prices were surging, and domestic crude producers were reaping significant profits. Private oil marketing companies were exporting petrol and diesel to countries like Australia for higher realization.
The fuel shortage at retail outlets stemmed from the reluctance of oil marketing companies to sell at a loss since prices had not risen despite increasing crude costs and a depreciating rupee. This led to losses of Rs 20-25 per litre on diesel and Rs 10-15 per litre on petrol.
Over the last two weeks, the benchmark contract of Brent on the Intercontinental Exchange has fallen by over 12% due to fears of a recession in the US and an overall global recession. This has prompted the Indian government to review and then adjust the previously imposed duties.
UPSC Civil Services Examination Questions
Former mains questions from the Union Public Service Commission (UPSC) Civil Services Examination include queries about the Constitution (One Hundred and First Amendment) Act, 2016. Candidates were asked to explain its salient features and debate its efficacy in removing the cascading effect of taxes and providing a national market for goods and services.
