Govt mulls duty cuts to help oil PSUs stay afloat
It is estimated that a Re 1 cut in excise duty could reduce under-recoveries of oil companies by around Rs 6,650 crore annually. Effective tax-saving tool I Budget '08
By Rajeev Jayaswal, TNN |
NEW DELHI: The government is believed to be working on a proposal to cut duties on crude oil and petroleum products to counter the high global oil prices. The proposal includes a reduction in customs duty on crude oil (from 5% to 2.5%); petrol and diesel (from 7.5% to 5%); aviation turbine fuel (from 10% to 7.5%); and naphtha, natural gas and non-domestic LPG (from 5% to 2.5%).
Excise duty on petrol and diesel may also be cut by around Re 1/litre, sources said. It is estimated that a Re 1 cut in excise duty could reduce under-recoveries of oil companies by around Rs 6,650 crore annually. The duty changes, if accepted, will be announced in the Union Budget, they said.
Despite the recent increase in petrol and diesel prices by Rs 2/litre and Re 1/litre, respectively, oil companies continue to incur losses on the sale of these two auto fuels. To fully offset under-recoveries, retail prices of petroleum products will have to be raised substantially: petrol by Rs 7.20/ litre, diesel by Rs 9.94/litre, PDS kerosene by Rs 19.89/litre and domestic LPG by Rs 331.34. The sources said after a marginal hike in auto fuels, the government is now planning to restructure customs and excise duties.
The effective excise duty, which is a combination of ad-valorem and specific duties, on petrol is Rs 15/litre and diesel, Rs 5/litre. A section in the government believes that high excise duties are inconsistent in the current scheme where the government, on the one hand, is providing compensation to oil companies and on the other, is levying high excise duty.
Excise duty on petrol and diesel may also be cut by around Re 1/litre, sources said. It is estimated that a Re 1 cut in excise duty could reduce under-recoveries of oil companies by around Rs 6,650 crore annually. The duty changes, if accepted, will be announced in the Union Budget, they said.
Despite the recent increase in petrol and diesel prices by Rs 2/litre and Re 1/litre, respectively, oil companies continue to incur losses on the sale of these two auto fuels. To fully offset under-recoveries, retail prices of petroleum products will have to be raised substantially: petrol by Rs 7.20/ litre, diesel by Rs 9.94/litre, PDS kerosene by Rs 19.89/litre and domestic LPG by Rs 331.34. The sources said after a marginal hike in auto fuels, the government is now planning to restructure customs and excise duties.
The effective excise duty, which is a combination of ad-valorem and specific duties, on petrol is Rs 15/litre and diesel, Rs 5/litre. A section in the government believes that high excise duties are inconsistent in the current scheme where the government, on the one hand, is providing compensation to oil companies and on the other, is levying high excise duty.
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���There is a case now to lower taxes on petrol and diesel,��� a senior official with the petroleum ministry said. It is likely that the excise duty would be effectively reduced by doing away with the ad-valorem component. The Parliamentary Standing Committee has also made a suggestion to this effect. Inclusive of road cess, the excise duty on petrol is 6% (ad-varorem) + Rs 13/litre (specific duty). On diesel it is 6% + Rs 3.25. On top of this, both diesel and petrol attract a 3% education cess.
On the customs front, the proposal involves an across-the-board reduction in tariffs. ���With oil prices scaling unprecedented highs, there is a case for lowering the customs duty across the board both for crude oil and petroleum products by 2.5%,��� said another senior official with the government. Currently, crude oil attracts 5% customs duty whereas sensitive products like kerosene for distribution through ration shops, domestic LPG and naphtha for fertiliser industry attract zero duty.
Customs duty on petrol and diesel is currently 7.5%, which is effectively 6% due to trade-parity pricing. A 2.5% reduction in customs duty on auto fuels will result in 4% import duty on the two products.
The oil sector is single-largest source of revenue for both the central and state governments. In 2006-07, the central government collected Rs 93,802 crore from oil sector through taxes and duties, while states��� revenue collection was Rs 62,121 crore.
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