Tax cuts on petrol and diesel have brought succour to the inflation trajectory and household budgets, at the cost of revenue being foregone by the central and state governments. In this column, we argue that the fiscal cost of tax cuts is affordable, with central tax collections expected to substantively exceed the level budgeted for FY2022. However, we highlight that the rising guarantees of some state governments are likely to pose a potential fiscal risk over the medium term, especially where such guarantees have been extended towards debt taken for non-revenue generating projects. With the recent surge in crude oil prices feeding into record-high retail fuel prices and impinging on disposable incomes, the Government of India (GoI) announced a welcome cut in the road and infrastructure cess (RIC) component of central excise duty by Rs 5\/litre on motor spirit (MS) or petrol, and Rs 10\/litre on high-speed diesel oil (HSD) in November 2021.<\/p>\n
We have factored in the impact of this excise duty cut and our expectations for mobility and the economic recovery into the fuel consumption estimates for the rest of the year. Accordingly, ICRA expects the consumption of petrol and diesel to record a year-on-year rise of 14% and 8%, respectively, in FY2022, on the shrunken base of FY2021. Based on the revised rates and assessed consumption, we project the gross and net revenue loss to the GoI from the excise cuts at Rs 440 billion each in FY2022, since RIC is not shared with the states. However, since most states levy value-added tax (VAT) on an ad valorem basis, the excise cut will lower their VAT inflows by about Rs 90 billion. Subsequently, varying VAT cuts on fuels have been announced so far by 25 states and Union territories (UTs), and others may well follow. We tentatively estimate the revenue loss to all states and UTs from the VAT cuts on these fuels at Rs 350 billion. Accordingly, their total revenue foregone is assessed at Rs 440 billion for FY2022, in line with the expected revenue loss of the GoI. However, this is not unaffordable for the Centre or states. Even after the excise cut, ICRA expects the net tax revenues of the GoI and the central tax devolution to states to exceed the GoI\u2019s FY2022 budget estimates (BE) by a substantial about Rs 1 trillion and Rs 600 billion, respectively.<\/p>\n","protected":false},"excerpt":{"rendered":"
Tax cuts on petrol and diesel have brought succour to the inflation trajectory and household budgets, at the cost of revenue being foregone by the central and state governments. In this column, we argue that the fiscal cost of tax cuts is affordable, with central tax collections expected to substantively exceed the level budgeted for FY2022. However, we highlight that the rising guarantees of some state governments are likely to pose a potential fiscal risk over the medium term, especially where such guarantees have been extended towards debt taken for non-revenue generating projects. With the recent surge in crude oil […]<\/p>\n","protected":false},"author":44,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[130,195,138],"tags":[],"class_list":["post-450319","post","type-post","status-publish","format-standard","hentry","category-newspapers","category-oil-gas-the-financial-express","category-the-financial-express"],"acf":[],"_links":{"self":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts\/450319","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/comments?post=450319"}],"version-history":[{"count":0,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/posts\/450319\/revisions"}],"wp:attachment":[{"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/media?parent=450319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/categories?post=450319"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/infralive.com\/web\/wp-json\/wp\/v2\/tags?post=450319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}