'Hike in fuel excise to result in $21 billion tax collection increase,' says Moody's

The government's hike in fuel excise amid the Coronavirus pandemic will result in tax collection increase by about 21 billion dollars if the tax is maintained properly for a year, stated Moody's Investors Service on Wednesday. According to Senior Vice President for Corporate Finance at Moody's Vikas Halan, the hike reinforces the importance of oil marketing companies to the government and validates the support incorporated in the credit assessment of these companies.

In a statement, he further said that the tax hike could result in higher working capital outflow for the oil marketing companies, which will partly offset the working capital savings from lower inventory costs. The government on Tuesday hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low. This is the second hike in excise duty in less than two months that will help the government to garner over Rs 1.7 lakh crore in additional revenues annually at 2019-20 level of consumption. 

Read: Punjab government increases VAT on petrol, diesel; rate to go up by Rs 2 per litre

States impose VAT on fuel 

The Delhi government on Tuesday increased the Value-Added Tax (VAT) on petrol and diesel resulting in the rise in the price of the two fuels. While the petrol price has increased by ₹1.67 per litre, the price of diesel has increased by ₹7.10 a litre. While Haryana government recently hiked tax by ₹1 per litre on petrol and ₹1.1 per litre on diesel, Tamil Nadu government hiked VAT by ₹3.25 per litre for petrol and that of diesel by ₹2.50 per litre.

Read: RSS details Covid seva: 67k places, 3.42 lakh workers; 50.5 lakh ration kits; 3.2 cr meals

Meanwhile, the Punjab government on Tuesday night increased the VAT on diesel from 11.80 per cent to 15.15 per cent and on petrol from 20.11 per cent to 23.30 per cent. Moreover, the prices in entire Punjab will be costlier than that of Union Territory Chandigarh as the present price of petrol and diesel in UT Chandigarh is Rs 65.82 and Rs 59.30 a litre respectively.

Read: Delhi govt increases VAT on petrol & diesel; prices hiked by ₹1.67 & ₹7.10 respectively

Read: Petrol-Diesel excise hiked by Rs 10, 13; No price rise for buyers; Rs 1.6 lakh cr windfall