Centre to Bear the Yearly Revenue Loss Worth Rs 2.2 lakh crore Due to Fuel Tax Cuts
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Centre to Bear the Yearly Revenue Loss Worth Rs 2.2 lakh crore Due to Fuel Tax Cuts

On 21st May, the Centre decided to bring down the Road and Infrastructure Cess (RIC) on diesel to Rs 2 from Rs 8, on petrol to Rs 5 from Rs 15. RIC reduction came into effect on 22nd May. Finance Minister (FM), Nirmala Sitharaman, mentioned that Rs 2.2 lakh crore worth of revenue loss incurred due to two rounds of duty cuts on petrol and diesel would be entirely borne by the central government. FM also confirmed that revenue earned via RIC is not shared with the states.

FM said that the Centre would have a revenue implication of Rs 1 lakh crore a year due to the duty cut announced on Saturday. The duty cut made in November 2021 will have a revenue implication of Rs 1,20,000 crore a year for the Centre. Hence, the total revenue implication for the Centre on these two duty cuts will be Rs 2,20,000 crore a year.

FM mentioned that the duties and cess collected on auto fuels have helped render relief to the poor and farmers, and the revenue generated has been utilised in developmental work. As per the Reserve Bank of India (RBI) data, the overall developmental expenditure incurred by the government between 2014 to 2022 stands at Rs 90.9 lakh crore. Between 2004 and 2014, only ₹49.2 lakh crore was spent on developmental expenditure.

Industry experts opine that there will be a few indirect revenue implications on states’ revenues even though the Centre brings down the non-shareable excise components as value-added tax (VAT) levied by states on petrol and diesel are as per the value of the fuels.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in

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