Frequently Asked Questions 2020
Q1. Why in the first place Union Government has increased taxes on petroleum products?
- It must be noted that it is not only the Central Government which taxes Petroleum Products. Even State Governments levy their own taxes on Petroleum Products. In fact, about 15 % of revenue comes from these taxes for State Governments as against about 10 % for Central Government.
- With no alternative tax revenue source and lesser revenue tax collection at both Union and State levels, both Union and State Governments have significantly increased taxes on petroleum products, to meet their revenue requirements while keeping deficits within limits.
- Since 2015, with International crude prices dropping, the Union Government has been rather lucky to get more revenue by increasing taxes on petroleum products yet effectively keeping the retail prices of petrol and diesel in a narrow band.
- The importance of tax revenue from the petroleum products in India further increased with the introduction of the new indirect tax regime (Goods and Services Tax).
Q2. What are the negative effects of increased petroleum prices on overall economy?
- Rise in prices of petroleum products, increases transportation and energy costs. These being basic input costs cause a spiral upward effect on inflation, impacting overall growth of economy.
- Increase in prices of petroleum products, especially due to increase in tax components, renders entire economy globally uncompetitive.
Q3. What are the possible benefits of reduced petroleum prices?
What are the benefits of abolishing central taxes on Petroleum Products?
- Petrol and Diesel prices will drop by ~ 30 rupees per liter while CNG prices will reduce by about 6 rupees per kg.
- Significant drop in fuel and energy prices will boost transportation, give economy a momentum, increase GDP significantly and create numerous employment opportunities.
- Cheaper Transport (Goods and Passenger) will make the entire economy globally competitive, which will prove to be an effective enabler towards comprehensive goals like Make in India and Aatma-Nirbhar Bharat.
- Around 10 Crore people (Truck, Bus, Taxi, Tractor, Car and Three/Two-wheeler drivers) will be direct beneficiaries while indirectly, the entire society will benefit with immediate effect.
- Automotive Industry (Manufacturing & Transport Service) and its Ancillary Industry (mostly MSMEs) will get a boost.
- Significant rise in GDP will help achieve, rather easily, the desired goal of 5 Trillion Dollar Economy.
Q4. What are the benefits of introducing BTT?
- In the form of BTT, Government will get an innovative and a productive source of Tax Incidence
- A highly productive and elastic source like a Bank/Digital Transaction Tax will generate a sustainable revenue for the Government and Banks. This will enable effective functioning of the Government and Banking system. @ Just say 0.3 % BTT, Central Government will get ~ 6.6 Lakh Crore Rupees as Revenue which is nearly 2.5 times the current tax revenue on Petroleum Products.
- Due to an additional, live revenue source, banking system can upgrade to global norms in both technology and human resources.
Q5. Overall proposal benefits on overall economy
- Please refer to benefits explained in FAQ 3 & 4.
Q6. Why only demand removal of central taxes and not state taxes on petroleum products?
- State taxes is a State subject. Current proposal is for Union Government, keeping in mind Union Budget due in February 2021.
- However, once BTT is introduced and its productivity gets established in due course of time, States will also be in favor of BTT in lieu of State Taxes on petroleum products.
Q7. Will BTT apply on cash transactions?
- No. BTT will be applicable only on bank/digital transactions.
Q8. Is new BTT only for transactions involving purchase of Petroleum Products?
Is BTT applicable on any bank/digital transaction?
- BTT will be applicable for all bank/digital transactions, not just limited to petrol/diesel/CNG purchase. There will be a negative list of excluded/exempted transactions like Interbank, Government etc.
Q9. What if I pay cash to buy petrol/diesel/CNG?
- BTT will not be applicable on cash purchase of Petrol/Diesel/CNG.
Q10. Would BTT introduction lead to less digital transactions and more cash transactions?
- Overall BTT rate will be very small like 0.3 %, meaning 30 paisa per 100 rupees or 3 rupees per 1000 rupees and hence chances of shifting to cash transactions are less.
- Given the ease of digital transactions, it is unlikely that BTT introduction will lead to fewer digital transactions and more cash transactions.
Q11. Petrol, Diesel becoming cheaper would lead to excessive use and ill effects like pollution?
Will reduced prices lead to increase in vehicle count and also increased road congestion?
- This is an unusual time of economic stagnation and hence an increase in taxes on diesel and petrol may have unintended consequences. So other means should be considered to address this probable ill effects.
- In a country like India with huge economic disparity, socio-economic and environmental problems should be addressed with different mechanisms and these problems should not be clubbed together for effective addressal. The alternative means to address pollution issue can be Regulations, Usage of Clean Energy etc. which are very much there. For example, India shifted to BS VI in April 2020.
- After nationwide lockdown in India, during unlock procedure, liquor shops were amongst the first which were opened immediately. Reason being, significant tax revenue from these products compels government to promote these products considered ‘harmful’. Likewise, at present, a good public transport usually means lesser tax revenue for Government from Petroleum Products. Thus, instead of using tax as a tool to curb something, alternate non-conflicting mechanisms should be used.
Q12. How is it possible that Petrol, Diesel become cheaper by ~ 30 rupees per liter and yet Government will get more revenue through BTT?
- Central Government Tax Revenue (Excise, Customs and Cess) on Petroleum Products in 2019-20: ~ ₹ 2.6 Lakh Crore Source:Petroleum Planning & Analysis Cell
- Per RBI Data for April 2019 to March 2020,
- Value of Total Bank Transactions: ~ ₹ 3,475 Lakh Crore.
- Value of Excluded Transactions (Interbank, Government Securities): ~ ₹ 1,275 Lakh Crore.
- Value of Bank Transactions Considered to estimate revenue via BTT: ~ ₹ 2,200 Lakh Crore. Source:Payment System Indicators.
- @ Just 0.3 % BTT, Central Government will get ~ ₹ 6.6 Lakh Crore as Revenue (almost 2.5 times the current revenue).
Data Used: RBIB_Table_No._43___Payment_System_Indicators.