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NEW DELHI : The central government on Thursday slashed fuel prices, offering some relief to consumers on the eve of Diwali. The government cut diesel prices by 10 a litre and petrol by 5 a litre.

The tax reduction is expected to help cool inflation, boost consumption, and help in economic recovery. It comes against the backdrop of businesses recently complaining about a rise in commodity prices and input costs.

The price cut takes effect from Thursday, the finance ministry said. Retail auto fuel prices will come down accordingly, the ministry said. The Centre also urged states to reduce the value-added tax (VAT) levied on petrol and diesel to give further relief to consumers.

“The reduction in excise duty on diesel will be double that of petrol. Indian farmers have, through their hard work, kept the economic growth momentum going even during the lockdown phase, and the massive reduction in excise on diesel will come as a boost to the farmers during the upcoming Rabi season," the ministry said.

One factor that has enabled the Centre to bite the bullet and announce the tax cut is that goods and services tax (GST) collections are improving. GST receipts in October have reached the second-highest ever of 1.3 trillion, and e-way bill data for October indicate that GST receipts in November could touch a record level, exceeding the 1.41 trillion collected for transactions in March. Improved GST receipts could also rub off on corporate tax collections as higher sales could boost profits.

Crude oil prices have witnessed a surge in world markets in recent months, leading to an increase in domestic prices of petrol and diesel, causing inflationary pressures, the ministry said.

The economy has seen a remarkable turnaround after the slowdown caused by the covid-19 pandemic, and all sectors, manufacturing, services, and agriculture, are experiencing a significant momentum in economic activity, the ministry said. The significant reduction in fuel tax is aimed at giving a “further fillip to the economy," the statement said.

“The reduction in excise duty on petrol and diesel will also boost consumption and keep inflation low, thus helping the poor and the middle classes. Today’s decision is expected to further spur the overall economic cycle," it said. The government made efforts to see to it that there is no energy shortage in the country.

Taxes on petrol and diesel account for a major chunk of the revenues to central and state governments. It is a preferred source of revenue mobilisation given the ease of collection.

Centre’s excise duty and cess levied on unbranded petrol worked out to 32.9 a litre and on diesel worked out to 31.8 a litre, according to rates before the latest tax cut, showed data from the petroleum planning and analysis cell of the oil ministry.

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