From UPSC perspective, the following things are important :
Prelims level : Excise duty
Mains level : Crude oil pricing dynamics
In a move which would help the government to raise excise duty on fuel further in future, the government has raised the cap on special additional excise duty on petrol and diesel. These changes are as per the amendments in the Finance Bill passed in the Parliament.
Why such move?
- Government is increasing duties on petrol and diesel to raise revenues in view of a tight fiscal situation.
- Slump in global crude oil prices, alongside possibility of a global economic recession, has forced the government to look for avenues to raise revenues to support growth.
- With major companies going for production shut downs, industry players have suggested the government to boost fiscal stimulus in the wake of demand collapse triggered by the coronavirus.
- Earlier, Saudi Arabia had triggered the crash in prices by announcing a sharp increase in oil production after Russia declined to reduce oil supply to contain a fall in oil prices due to declining demand in a meeting of petroleum exporting countries.
Impact of the move
- Every rupee hike in excise duty is expected to yield roughly Rs 13,000-14,000 crore annually.
- The slump in global crude oil prices enables the government to raise these duties substantially without immediately putting the burden on the consumer.
- But there is expected to be a demand slowdown for fuels with a nearly country wide lockdown in the wake of coronavirus.
- With airlines, railways, trucks and passenger cars going off the roads, petrol, diesel and ATF (aviation turbine fuel) consumption is expected to fall drastically.
What is Excise Duty?
- Excise duty is a form of tax imposed on goods for their production, licensing and sale.
- It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
- At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
- Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.
Purview of excise duty
- The GST introduction in July 2017 subsumed many types of excise duty.
- Today, excise duty applies only on petroleum and liquor.
- Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
- States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
- After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.
Types of excise duty in India
Before GST kicked in, there were three kinds of excise duties in India.
Basic Excise Duty
- Basic excise duty is also known as the Central Value Added Tax (CENVAT). This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
- This duty was levied under Section 3 (1) (a) of the Central Excise Act, 1944. This duty applied on all goods except salt.
Additional Excise Duty
- Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
- This duty was levied on some special category of goods.
Special Excise Duty
- This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
- Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.