'Perfect tax sleight of hand,' says expert as Centre hikes excise duty on petrol, diesel

Security expert Sushant Sareen on Monday criticised the central government's decision to raise excise duty on petrol and diesel, calling it "a perfect tax sleight of hand" at a time when international oil prices have plunged. "With oil prices crashing, fuel prices should be cut," he wrote on X. "But Govt is getting a windfall and will keep raking in the taxes. If oil prices were to rise then it would be passed on to consumers. But if prices fall then the govt benefits through higher taxes. A perfect tax sleight of hand."

His remarks came just after Union Minister for Petroleum and Natural Gas Hardeep Singh Puri confirmed that excise duties on both petrol and diesel had been increased by Rs 2. "You would have seen a notification from the Ministry of Finance saying that the excise rates are going up by Rs 2 on petrol and diesel. Let me clarify upfront on the record, this will not be passed on to the consumer,” Puri said in a press conference.

Explaining the rationale, Puri said the international price of crude came down to around $60 a barrel, but oil marketing companies carry inventories over a 45-day period. "If you go back to January, the crude price then was $83, which came down subsequently to $75. So the crude inventory that they're carrying is at $75 on average per barrel. You can legitimately expect prices of petrol and diesel to be moderated by the oil marketing companies in keeping with the global price. In a deregulated sector, you can expect them to accordingly adjust the market retail price."

Earlier today, Congress MP Manish Tewari also questioned why the prices were not cut despite fall in crude oil prices. "Crude oil prices are in a free fall. Today Crude Oil is at USD 64 to a barrel. Why Hardeep Puri is the benefit not being passed onto the consumers? What happened to dynamic pricing? Is it a one way street that only goes up and does not go down?” he wrote on X.

Meanwhile, Puri said the hike in excise duty was not meant to burden petrol and diesel users but to support oil marketing companies for losses incurred on LPG. “The price per cylinder of LPG will increase by Rs 50. From 500, it will go up to 550 (for PMUY beneficiaries) and for others it will go up from Rs 803 to Rs 853. This is a step which we will review as we go along. Therefore, the excise duty that you have seen increase is not to go on to the consumer on petrol and diesel. That excise increase is intended to compensate the oil marketing companies for Rs 43,000 crore that they have incurred as a loss on the gas part of it,” he said.

Oil prices extended their losses on Monday, as recession fears deepened. Brent futures dropped by $2.23 to $63.35 a barrel, and West Texas Intermediate (WTI) fell $2.22 to $59.77. Both benchmarks are now at their lowest since April 2021. The slide follows a 7 per cent drop on Friday, driven by China’s increased tariffs on U.S. goods.

Goldman Sachs on Monday pegged the risk of a US recession at 45 per cent over the next 12 months. JPMorgan last week put the probability at 60 per cent, both in the U.S. and globally.