Fuel Tax

In News:  the Union government announced a reduction in the excise duty on petrol and diesel by Rs 8 per litre and Rs 6 per litre respectively.

• Alongside, the government also reduced the customs duty on raw materials and intermediaries for plastic products and iron and steel.

Reason for reduction

• These decisions are driven by the desire to cool the surge in inflation — recent data showed that retail inflation had risen to an eight-year high of 7.9 per cent in April, while wholesale inflation has been in double digits for 13 consecutive months.
• As per some analysts the cut in fuel taxes could help reduce inflation directly by around 20 basis points in June
• This is the second time in the recent past that the Centre has cut fuel taxes. In November last year, the Centre had lowered the excise duty on petrol by Rs 5 and by Rs 10 on diesel.

The entire burden of the tax cuts will be borne by the Centre

• Union Finance Minister said that the entire duty reduction in petrol and diesel announced has been done out of the Road & Infrastructure Cess (RIC) component of the taxes levied on petroleum products so the entire burden of the tax cuts will be borne by the Centre,
• Allaying concerns that the duty cuts will lower the devolution of taxes to States, Finance Minister said that the basic excise duty on petro products, which is sharable with States, has not been touched.

Taxes levied on petrol and diesel

• The total taxes levied on petrol and diesel include a Basic Excise Duty (BED), a Special Additional Excise duty (SAED), the Road & Infrastructure Cess (RIC) and the Agriculture & Infrastructure Development Cess (AIDC), of which only the BED is sharable with States
• The two cuts announced (November and the present one) is from Road & Infrastructure Cess (RIC) component of the taxes levied on petroleum products

Excise duty and Custom 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.

Previous Year Questions (PYQs)

Q.1) With reference to India’s decision to levy an equalization tax of 6% on online advertisement services offered by non-resident entities, which of the following statements is/are correct? (2018)

1. It is introduced as a part of the Income Tax Act.
2. Non-resident entities that offer advertisement services in India can claim a tax credit in their home country under the “Double Taxation Avoidance Agreements”.

Select the correct answer using the code given below:

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Source: Indian Express & The Hindu