No pain, all gain in this revamp

NEW DELHI: The Lahiri committee recommendations — expected to serve as the blueprint for the oil sector's duty structure in Budget '05-06 — seeks to keep the interests of the consumer, the government and the oil industry in mind. Retail customers of petrol and diesel would be cushioned to a large extent from the spurts in the global oil prices, thanks to a heavy specific duty component in the excise levy. North Block, too, can continue banking upon the oil sector to keep the revenue cash registers ringing. The oil industry will be heavily protected as before. The Ashok Lahiri panel on restructuring petroleum duties has called for sharp cuts on customs and excise duties on major petroleum products. Excise levies on petrol and diesel, as per the proposal, will combine specific and ad valorem levies. While the advalorem component is proposed to be limited to 8% both on petrol and diesel, the specific levy component on petrol is proposed to be Rs 13.5 per litre. Diesel would attract a specific duty of Rs 4.5 per litre, if the recommendations are accepted. The combination of specific and advalorem in the excise duty structure will help twin objectives of keeping a buoyancy in revenue collections if prices increase, and protecting the consumers from the volatility of global prices. As of now, petrol attracts an advalorem excise levy of 23%, but the specific duty is Rs 7.5 per litre (inclusive of the road cess). Diesel attracts an advalorem of 8% and a specific duty of Rs 1.5 per litre. An advalorem levy is calculated as a percentage of the value of the product, a specific duty is fixed and is calculated as rupees per unit volume. The panel has also recommended a significant drop in customs duty rates on crude and all petro-products. Though the customs levy on petrol and diesel are recommended to be brought down to 10% from 15%, all other petro-products, including ATF, fuel oil, furnace oil etc would attract 15% customs duty. In general, a cut in customs levy on crude, the main revenue earner in customs, would not find too many takers in the finance ministry. The panel has addressed this problem by increasing the specific duty on petrol and diesel. It is estimated that at the current prices (Rs 12,045 per tonne), a 5% cut in customs duty on crude would lead to a revenue drop of Rs 6,000 crore annually. The panel has recommended increasing the specific levy on petrol and diesel by Rs 1 per litre to compensate for the shortfall in revenue through crude levies. Thus the duty restructuring would have a revenue neutral impact for the finance ministry. A cut in customs duty would also be a welcome break for refinery companies. However, slashing customs duties on products would retain the differential tariff protection at the same level. In a surprise move, the panel has suggested that customs on naphtha for fertiliser which has nil customs duty , should attract a 5% levy. This is not likely to be accepted by the government as it would increase the fertiliser subsidy which is funded by the budget. However, there are serious differences between the petroleum and finance ministry views on some of the issues. For one, the petroleum ministry has demanded exemption of customs and excise levies on subsidised products —cooking gas and kerosene. The Lahiri committee, however, has maintained that there should be no negative protection on any product. This would mean that no product should attract a lower customs levy than the raw material, crude.

No pain, all gain in this revamp

The Lahiri committee recommendations - expected to serve as the blueprint for the oil sector's duty structure in Budget '05-06 - seeks to keep the interests of the consumer, the government and the oil industry in mind.

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