During COVID-19 pandemic, Modi government twice raised taxes on petrol and diesel in the last 12 months to boost sagging tax revenues.
Amid the ever increasing oil prices in the country, India's finance ministry is considering cutting excise duties on petrol and diesel to counter the price rise.
A doubling in the price of crude oil over the past 10 months has contributed to record fuel prices in the domestic market. India is the world's third biggest consumer of crude oil.
During COVID-19 pandemic, Modi government twice raised taxes on petrol and diesel in the last 12 months to boost sagging tax revenues.
Instead of passing on the benefits of low crude oil prices during pandemic times last year to consumers, government raised taxes on petrol and diesel.
Finance Ministry has now started consultations with some states, oil companies and the oil ministry to find the most effective way to lower the tax burden on consumers without federal finances taking a big hit, reports suggest.
India's Finance Minister Nirmala Sitharaman recently said, "I can’t say when we will reduce taxes on fuel, but (the) centre and states have to talk to reduce fuel taxes."
How government can decrease fuel rate?
Taxes and duties account for roughly 60% of the retail price of petrol and diesel in the country.
Government wants oil prices to stabilise before cutting taxes, as it does not want to be forced to change the tax structure again, should crude prices rise further.
The high fuel prices have prompted some Indian states to cut state-level taxes on petrol and diesel to rein in prices. These states include - West Bengal, Rajasthan, Assam, and Meghalaya.
The Ashok Gehlot-led Congress government in Rajasthan reduced the VAT on fuel from 38% to 36%.
A decision on fuel taxes may only be made following a meeting of OPEC and major oil producers, also known as OPEC+, later this week.
India has called on OPEC+ to ease production cuts as higher crude prices are hitting fuel demand in Asia's third largest economy and are contributing to inflation.
As per government data, the federal government and states together raised some 5.56 trillion rupees ($75.22 billion) in revenues from the petroleum sector in the fiscal year ended March 31, 2020.
In the nine months of this fiscal year (April-December 2020), contributions from the petroleum sector were about 4.21 trillion rupees, despite a significant decline in local fuel demand, the data showed.
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