Fuel Price Drop to Spur Economic Growth by 1%

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“The drop in the prices will stimulate the economy by lowering the cost of transportation, resulting in a drop in prices for consumers and industrial goods,” he said adding that this will cascade to a reduced cost of infrastructure development.

Fuel Price Drop to Spur Economic Growth by 1% (Source: http://www.kuenselonline.com)

 

The fortnightly revision in prices of petrol and diesel is routine because of the fluctuation in global oil prices. This revision is not related to the recent plunge in fuel prices on the back of goods and services tax (GST) in India.

Reduction in fuel prices

The government, on November 11, announced a reduction in petrol price by Nu 10.29 a litre and diesel by Nu 7.75.  On November 16, petrol price increased by Nu 2.20 and diesel by Nu 1.38. A litre of petrol now costs Nu 56.31 and diesel, Nu 51.95 in the capital.

The later revision was a result of the fluctuation in global oil price. “In some countries, fuel prices would change everyday,” Economic Affairs Minister, Lekey Dorji said at the National Assembly yesterday.

Fuel in western Bhutan, he said is imported from Siliguri while it is procured from Guwahati for eastern Bhutan. The government of India’s notification to bring petrol and diesel under the purview of GST reached Siliguri only towards the end of October.

The Indian GST regime is designed in such a way that all exports going out of India will be zero taxed and it subsumes 17 different indirect taxes including the excise duty.

In the earlier regime, the government of India levies excise duties at the source and later refunds it back to the government. This means that the excise duty component on the fuel is now abandoned.

Benefits passed on to consumers

During the ‘question hour’ on 24 November 2017, Bartsham Shongphu MP, Wangdi Norbu asked the economic affairs minister whether the full benefits from the excise duty is passed on to the consumers.

This is because, he said, excise duty on petrol in India is Nu 21.47 and Nu 17.56 for diesel. “If the excise duty is waived, benefits should be proportionate to the existing excise duty,” he said.

Lyonpo Lekey Dorji said that the full benefits of the excise duty have been passed down to the consumers. He said that the government would have to forego a revenue of about Nu 1.6B a year, Nu 1.5B in excise duty refund and about Nu 94M from reduced sales tax and green tax.

Soon after the Indian government’s notification, Lyonpo said that a committee comprising of experts from the economic affairs and finance ministries was formed to assess the impact.

It is estimated that reduced fuel prices would result in economic growth of one percent. The experts provided the government with three options.

First, to pass the full benefits to consumers and this would cost the government coffer Nu 1.6B a year. The other option was to endorse the new price but revise both sales tax and green tax from five to 15 percent. This, Lyonpo said, would result in a loss of Nu 349M from the government coffer.

The last option was to increase the green tax and sales tax from five to 10 percent. “Even this would result in a revenue loss of Nu 940M,” he said.

After a thorough discussion in the Cabinet, it was decided to pass the full benefits to consumers and to maintain the status quo on the taxes.

The drop in the prices will stimulate the economy by lowering the cost of transportation, resulting in a drop in prices for consumers and industrial goods,” he said adding that this will cascade to a reduced cost of infrastructure development.

Fuel imports from India is a major import item accounting for Nu 7.369B worth of imports in 2016.

After six months, the government is expected to review the prices of goods and services again. Lyonpo Lekey Dorji said that the office of consumer protection is already working on it.

 

By Tshering Dorji (This article has been edited for the Daily Bhutan)

This article first appeared on Kuensel.

 


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