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The oil price shock' OMCs impacted May 08 2020Oil Price

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The oil price shock' OMCs impacted

The government on Tuesday night raised the excise duty on petrol and diesel by Rs. 10 per liter and Rs. 13 per liter respectively in order to mobilise the revenue collections during the time when the global crude oil prices are significantly low. With this hike, the excise duty on petrol is Rs. 32.98 per liter and on diesel is Rs. 31.83 per liter.

Reason for Spike in Petrol and Diesel Prices

The government has been raising the excise duty on petrol and diesel several times in the past in order to take advantage of the lower oil prices. In fact, this is the second hike in a little over a month. The government has earlier raised the duty of Rs. 3 per liter on petrol and diesel on March 14.

The government is trying to compensate for the lower demand of fuels owing to the coronavirus crisis and ongoing lockdown with the higher tax rates. Besides, the sharp decline in the prices of crude oil has opened unexpected sources of revenue for the government which was struggling to find resources during the economic slowdown.

With the price hike in March, the government expected to yield Rs. 39,000 crore additional annual revenue. While with this hike, it is expected to yield Rs. 1.5 lakh crore. It would roughly contribute to 0.67% of GDP on an annual basis.


Impact of Duty Increase

The price hike would not affect the consumers as it will be borne by the Oil Marketing Companies like BPCL, HPCL, Indian Oil, etc. The rise in excise duty will be adjusted against the marketing margins of these companies. This means there will be no increase in retail prices of fuel for the consumers. However, with this adjustment, the marketing margins of the oil companies will see a share downfall.

It is because of this reason that the stocks of BPCL, HPCL and Indian Oil saw a 3% to 5% fall in today’s market even when the BSE Sensex was 1% up.

Increase in Taxes at State Level

Apart from the central government’s excise duty hike, several states and union territories including Haryana, Delhi, Punjab and Assam have also increased the state taxes on fuel. For instance, Karnataka has increased Value Added Tax (VAT) on petrol and diesel by 3 percentage points with effect from April 1. Tamil Nadu increased its VAT by Rs. 2.5-3.25 per liter on petrol and diesel. Delhi also increased its VAT on petrol and diesel by 3 percentage points and 13.25 percentage points respectively. Likewise, Nagaland has levied Rs. 5-6 per liter additional tax on petrol and diesel with effect from April end.



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