Budget to amend excise regime for petro products

NEW DELHI: Budget ’03-04 is likely to introduce specific excise duties for the petroleum sector for the first time, in place of the ad valorem duties now levied. The specific duty is likely to be Rs 10.50 to Rs 11 per litre on petrol and about Rs 3 per litre on diesel, if the current duty levels are maintained.
The advantage of a specific duty is that the duty element of the final price does not fluctuate with global changes in product prices. Ad valorem duties amplify global changes in price at the consumer-end.
Specific duties will also make the actual levy of taxes and provision of subsidy more transparent to the consumer. While the government claims to be bearing a heavy subsidy burden on petroleum products, this subsidy is computed on a price that includes heavy taxes. If the government did not tax products so heavily, the final price would be lower, and so would be the need and provision for subsidy.
A case in point is the LPG subsidy. While the government claims that it provides a subsidy of Rs 71 per cylinder of LPG, it mops up Rs 32 as excise on every cylinder of LPG sold. In effect the actual subsidy comes to only Rs 39 per cylinder.
With the introduction of specific excise duties, the incidence of excise levies will be transparent in the price. Also, the levy of specific duties to some extent will reduce the impact of volatility of global prices on domestic prices. Under the present ad valorem structure, where duties are levied at three levels — customs, excise and sales — the price of such products increases at every point.
More so, because unlike most industries, excise duties on petroleum products are imposed at depot levels which means that the price on which excise is added includes transport charges and other transition costs. As of now, the ad valorem excise duty translates into an absolute duty of Rs 3.50 per litre on petrol, on top of which Rs 6 per litre was introduced as a cess last year.
Added to this is one rupee charged as cess for road development. On diesel, the duty works out to Rs 1.80 per litre and an additional one rupee for road development. Given that the consumption level remains the same, the central exchequer has an assured revenue of at least Rs 30,000 crore on these two products alone. The revenue department is estimated to mop up another Rs 7,000 crore from other petroleum products. Over and above this all products are subject to sales tax which vary between 12%-20% and 25%. Rates under the new VAT regime for petro-products remain unclear as yet.