NEW DELHI: The government has raised excise duty on petrol and diesel by ₹3 each to boost revenue collections taking advantage of the declining global crude oil price.

Central Board of Indirect Taxes and Customs (CBIC) has notified the additional excise duty on petrol and diesel by ₹1 each and special additional excise duty on the two fuels by ₹2 each, effective Saturday.

Following the changes, excise duty on petrol has gone up to ₹22.98 from ₹19.98 and that on diesel to ₹18.83 from ₹15.83. This is in addition to the value added tax that states levy on auto fuel.

The sharp decline in global crude oil price has opened up an unexpected revenue stream for the Narendra Modi administration struggling to find resources during an economic slowdown.

Taxes account for a major share of the retail price of petrol and diesel. The Narendra Modi administration had raised excise duty on autofuel several times after coming to power in 2014 to raise resources for welfare schemes.

A government official said that despite the duty increase of ₹3 per litre, petrol and diesel prices were marginally lower on Saturday compared to Friday’s levels. The official, who did not wish to be named, said the decision was taken as a measure of fiscal prudence.

“This would provide much needed resources for infrastructure and other developmental items of expenditure keeping in view the present fiscal position…While the benefit of reduction of crude prices in the first quarter of this year has significantly gone to the consumer, the government has taken this step of increasing duty to raise some revenue in view a tight fiscal situation," said the official.

Global crude oil price had more than halved from January to about $32 a barrel this week, leading to a more than ₹6 reduction each in retail price of petrol and diesel between 11 January and 14 March, the official added.

The low oil price regime may also tempt states to consider stepping up Value Added Tax (VAT) on auto fuel.

For state-owned oil marketing companies like Indian Oil Corp Ltd, which at times come under pressure from government to give price relief to consumers by taking a hit on their financial health, the low oil price regime offers a chance to recover some of those losses by not passing on the benefit of oil price fall entirely to consumers.

Although auto fuel prices are decontrolled, during periods of high crude oil price or in the run up to elections, state-run retailers feel obliged to modulate prices in such a way consumers do not feel the pinch.

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