The central government has extended the October 1 deadline to levy an additional ₹2 per litre tax on unblended.
Auto fuels by one month for petrol and by six months for diesel amid global crude oil price volatility and high inflation, providing relief to consumers in remote areas with inadequate supplies of ethanol or biodiesel.
The deadline for petrol has been extended to November 1 and diesel to April 1, a notification issued on Friday said. If the levy was not extended, pump prices of petrol and diesel in many places could have gone up significantly as retailers could no longer absorb the impact, two persons aware of the development said, requesting anonymity.
The Union budget on February 1 announced the levy on unblended petrol and diesel to nudge pumps to sell petrol blended with ethanol and diesel blended with biodiesel from October 1.
“Blending of fuel is a priority of this Government. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of ₹2 per litre from the 1st day of October 2022,” finance minister Nirmala Sitharaman had said in her budget speech on February 1.
“Motor spirit commonly known as petrol which is intended for retail sale, not so blended with ethanol or methanol” would attract ₹3.40 a litre tax if sold without any brand name, while the levy on branded unblended petrol will attract ₹4.60 per litre from November 1, 2022, according to the government notification.
The Budget has proposed higher levies for the two types of diesel not blended with alkyl esters of long chain fatty acids obtained from vegetable oils, commonly known as biodiesels. A levy of ₹3.80 per litre will be imposed on sale of unblended diesel without any brand name from April 1, 2023, while diesel with a brand name would attract a levy of ₹6.20 a litre, the notification said.
The deadlines have been extended due to unprecedented volatility in crude oil prices in the international market, huge losses incurred by state-run oil marketing companies (OMCs) who are still facing shortages of ethanol and biodiesel in many places, and the levy may raise unblended fuel rates impacting inflation, which is high, according to one of the persons mentioned above.
“While some OMCs are facing logistics issues in case of supply of ethanol in different parts of the country, there is not enough availability of biodiesel. Hence, the government has given respite to OMCs, else they would have passed the tax burden to the consumer, which is undesirable when inflation is at 7%,” the person said.
State-run OMCs – Indian Oil, Bharat Petroleum and Hindustan Petroleum – enjoy a virtual monopoly in domestic fuel retail, with over 90% market share. Under tacit direction of the government, these firms have frozen petrol and diesel rates since April 7, which resulted into a combined net loss of ₹18,500 crore in the first quarter of current financial year against ₹9,238 crore net profit in the first quarter of 2021-22.
The central government is adopting caution in any rise in fuel rates as that may stoke inflation, which has stayed above the Reserve Bank of India’s upper tolerance limit of 6%. After hitting a peak of 7.8% in April, India’s retail inflation, as measured by the consumer price index, gradually moderated to 6.71% in July, only to rise again to 7% in August, mainly due to an increase in food and fuel prices.