Union Minister for Petroleum and Natural Gas Dharmendra Pradhan seeks Congress apology

Mae Love
May 28, 2018

But today the NDA government is putting the blame exclusively on the rise of crude oil prices by the oil producing countries.

The tax could be used in two ways - as a subsidy to fuel retailers for absorbing the hikes and not passing them on to consumers or compensation to the government if it cuts the excise duty. Additionally, states too would be asked to cut sales tax or VAT to show a visible impact on retail prices.

From plunging to $26 in February 2016 before climbing back to around $78 per barrel on Tuesday, oil prices have defined volatility. In 2011, the United Kingdom raised the tax rate on North Sea oil and gas profits when the price rose above $75 a barrel. Critics argue that as oil minister, he should at least have a bigger say - and an even bigger intent on providing relief.

However, finance ministry officials contended that "from an economist's standpoint, a windfall tax is seen as non-distortionary and pro-poor".

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In particular, resources have to be arranged for the National Health Protection Scheme (NHPS) that aims to provide health insurance cover of Rs5 lakh to every eligible household.

It is mostly agreed that bringing fuel prices under GST would help significantly reduce taxes imposed on petrol and diesel - a key component behind the now record-high prices. Since Indian oil producers sell their crude at worldwide prices, any revenues from oil sales at more than US$70 would be collected by the state and transferred to fuel retailers to cushion the price blow to end consumers. Levying of taxes on the consumers for more than the value of the product itself is not, at all justified on the part of Modi government which promised for Achchey Din during election campaign.

Since the time the hiatus ended on 14 May, rates have gone up by Rs2.84 a litre in case of petrol and Rs2.60 in diesel. In October past year, the Centre cut excise duty by Rs 2. States may not be willing to allow that because taxes on fuel account for 11% of their overall tax revenue. "The price of petrol and diesel will automatically come down if the centre reduces excise duty", he said.

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