Fuel tax rates: Cutting through the clutter of disinformation

Yes, the Union Government has cut the fuel tax and indeed it’s a relief. But why were the prices increased in the first place and who was responsible for that? A look at the flip-flops that preceded the recent excise duty cuts…

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After months of watching the price of fuel rise, and trying to convince yourself to walk to the corner shop instead of driving (I can’t be the only one), Union Finance Minister Nirmala Sitharaman decided, enough is enough. 

In the spirit of putting “people first,” Sitharaman announced that the Union Government is slashing fuel taxes. In a tweet on May 21, she said that the central excise duty on Petrol and Diesel will be reduced by Rs. 8 and Rs. 6 respectively, which meant retail prices will drop by Rs. 9.5 and Rs. 7 per litre.  

The news brings about a modicum of relief to people like Siva from Chennai who was forced to ride share-auto rickshaws for work to cut costs. In fact, the 39-year-old cashier in a private hospital wanted the Tamil Nadu government to allow free travel for men too. “Why gender bias,” he quipped. For Hyderabad’s Razia Fatima, high fuel costs meant a cutback on non-essential travel. “There has not been much change in salaries during the pandemic, so we have to do what we can to spend money wisely,” she rued. For fishermen like Jomon from Kerala, fueling his boat cost more than the fish he’d catch. 

But before we all start driving around town, we need to understand what landed Siva, Razia, Jomon and, well, you, in this pickle. The recent tax cuts might just be another move in a long, drawn-out game. In fact, even the latest announcement is riddled with many extravagant claims.

To start, in her announcement, Sithraman noted the cost – revenue implication – of the fuel cuts on the Union Government will be 1 lakh crore, and the entire burden of these revenue losses will be borne by the Centre. Her point is simple: the cut of Rs 8 per litre came from the Road and Infrastructure (RIC) component of the Union government’s excise duty, which is not sharable with States.  

To get this argument we must understand what makes up the Union government’s excise duty. There are currently four components to this tax: basic excise duty, which is shareable with States; a special additional excise duty, agriculture infrastructure and development cess (AIDC); and the RIC, which cannot be shared with States.