Deora moots 2.5% customs duty cut

The petroleum ministry has pitched for a customs duty cut across the board: on both crude oil and petroleum products. It is asking for a duty restructuring that includes a 2.5% Customs duty cut on crude oil and petroleum products, removal of ad valorem excise duties and reduction in specific excise duty rates.

A reduction in Customs duty on crude and products from the existing 5% to 2.5% will reduce the retail price of petrol and diesel by Rs 1.54 per litre and 1.56 per litre respectively. The proposed excise duty reduction would mean a further Re 1 per litre relief for consumers on both petrol and diesel, official sources said. It is understood the proposal is part of the presentation made by the group of ministers (GoM). The group is reviewing commodity prices in the country, including impact of rising global crude oil prices.

It is estimated that a duty rejig (both excise and Customs) will mean a revenue loss of Rs 18,000 crore. Customs duty on crude oil, naphtha, non-domestic LPG, LNG and natural gas is 5%. The excise duty on petrol and diesel has two components: a 6% ad valorem duty and a specific duty computed per litre. It is proposed the ad valorem duty be replaced by a larger specific duty. Currently, the excise duty is 6% plus Rs 13 per litre for petrol and 6% plus Rs 3.25 per litre for diesel. This is inclusive of the road cess but excludes the 3% education cess.

The government had eliminated excise duties on both PDS kerosene and domestic LPG. The finance minister reduced the ad valorem component of excise duty rate of petrol and diesel to 6% from 8% in Budget 2007.

Sources said the petroleum ministry had been pressing for a duty restructuring to provide immediate relief to PSU oil marketing companies, which are losing Rs 9.20 per litre on petrol, Rs 10.94 per litre on diesel, Rs 331.34 per cylinder on domestic LPG and Rs 19.89 per litre on PDS kerosene. The under-recoveries the oil companies are estimated at Rs 71,800 crore.

Global crude oil prices touched $100 per barrel in early January and the Indian crude oil basket was Rs 93.40 per barrel on January 8, 2007. The Indian basket had, however, softened to Rs 84.40 per barrel on Tuesday.

Advocates for an excise duty rejig also cite the Rangarajan Committee report on pricing and taxation of petroleum products, which states that “...imposing ad valorem duties during a time of persistent price increase is debatable”.

“Not only do ad valorem levies exacerbate the burden on the consumer, they also result in the government willy-nilly benefiting through higher tax yields, making it vulnerable to the criticism of profit at the expense of consumers.

There is, therefore, need for both softening and smoothening the impact on the consumer of international price variations and for the government sacrificing windfall gains in revenue,” the committee had said. The Centre’s total revenue earning in 2006-07 stood at Rs 93,800 crore from petroleum, of which 55% (Rs 51,920 crore) was excise duty mopup.