India opens door to raise excise duties on petrol, diesel

The Indian union government on Monday moved an amendment to the Finance Bill, 2020 to keep the option of raising additional excise duty on petrol and diesel by another Rs 10 per litre, signalling its intent to mop up any gains from falling international oil prices as pump prices of the two fuels are frozen since March 16. To be sure, this will not mean any increase in retail price of the fuels, but that the gains of falling crude prices will accrue to the government instead of the refiners.

The government could have also chosen to pass on the benefit to consumers by lowering fuel prices, although its thinking would appear to be to keep reserves handy for an imminent stimulus.

According to the amendment proposed by finance minister Nirmala Sitharaman on Monday with reference to the Finance Act, 2018, the additional excise duty limit for both petrol and diesel has been raised to Rs 18 per litre, two government officials said on condition of anonymity.

According to the Finance Act, 2018, the maximum limit of the levies for the two fuels was Rs 8 per litre.

"This indicates that central tax on petrol and diesel will be raised soon to augment revenue, which is absolutely required to boost that virus-hit economy and this will happen sooner than later," one of the officials said. At present total central levies including Rs 8 per litre additional excise duty on petrol and diesel are Rs 22.98 per litre and Rs 18.83 a litre.

A Rs 1 per litre hike in excuse duty would mean an additional Rs 14,500 crore of revenue to the exchequer a year.

Hindustan Times on March 21 had said the Union government would raise excise duty on petrol and diesel. It raised excise duty on the two fuels on March 14 by Rs 3 a litre and had frozen pump prices of the two fuels since March 16. Petrol is currently selling at Rs 69.59 a litre in Delhi and diesel at Rs 62.29 per litre despite international crude oil prices slumped by over 48%. Benchmark crude Brent was trading at $25.88 per barrel, down by over 4%.

Dinesh Kanabar, CEO, Dhruva Advisors LLP said that falling crude oil prices give a huge benefit to the government's import bill. "The hike in Excise Duty is with a view to the government keeping part of the benefit to itself rather then passing it to the consumers. We have tax slippages and disinvestment target not met and the special Excise Duty will help the government bridge some of the fiscal deficit."

The finance minister has proposed 59 amendments in the Finance Bill, 2020.

One of the amendments relaxed taxation provisions for non-resident Indian whose total income, other than income from foreign sources, does not exceeds Rs 15 lakh. The Finance Bill, 2020 has proposed that an Indian citizen shall be deemed to be resident in India for income-tax purpose if he is not liable to be taxed in any country.

"This change was proposed as it was noticed that some Indian citizens shift their stay in low or no tax jurisdiction to avoid payment of tax in India," Naveen Wadhwa, DGM, Taxmann said.

Hitesh D.Gajaria, partner and co-head of tax, KPMG India said, "There is now a proposed relaxation to changes in individual tax residency rules which had been moved in the Finance Bill 2020. Now those changes will largely apply only in cases where the individual has over Rs 15 lakhs in India sourced income."

The amendments proposed by Sitharaman were passed by the Lok Sabha by voice vote without discussion.

Other amendments proposed include a clarification that shareholders would have no tax liability if the company issuing the dividend has paid the dividend distribution tax (DDT) before April 1 but the shareholder received the dividend afterwards.