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Deora begins diesel duty cut drill
CUTTING EDGE

Excise on diesel should be cut as oil companies are making losses

It will help in containing inflation

Diesel should be included in ‘declared goods’ category

This will ensure diesel attracts a uniform state sales tax rate of 4 per cent

Finance ministry considers oil
sector a cash cow

Unlikely to accede to all demands

New Delhi, Jan. 23: Petroleum minister Murli Deora today sought a phased withdrawal of excise duty on diesel. To start with, the minister wants the excise to be reduced by Re 1 per litre in this year’s budget.

“Yes, we are for reduction in excise duty on diesel. Despite the fall in international crude prices, oil companies continue to make a loss of 50 paise per litre on diesel. Besides, such a duty reduction would help contain inflation,” Deora told reporters after an hour-long meeting with finance minister P. Chidambaram.

According to sources, Deora wants diesel to be eventually treated like kerosene and LPG, the two essential cooking fuels on which the government had completely withdrawn excise duty in the last budget.

The minister also proposed the inclusion of diesel in the list of 'declared goods' category. This will ensure that the fuel attracts a uniform state sales tax rate of 4 per cent instead of rates as high as 29 per cent at present.

In the last budget, the finance minister included LPG in the list of ‘declared goods’.

Deora reportedly pointed out that oil companies were not allowed to raise the price of diesel since it was considered an essential fuel because of its use in farm and transport sectors. According to the minister, the fuel should, therefore, be accorded the same status as LPG and kerosene as far as excise duty was concerned.

The current excise duty on diesel is 8.16 per cent with an additional surcharge of Rs 3.32 a litre. The total levy is Rs 4.98 per litre at current prices. Last year, the excise duty on diesel was Rs 3.41 per litre.

Sources said revenue from excise duty on diesel has increased to Rs 24,214 crore in 2005-06 from Rs 16,338 crore a year ago. Revenue on diesel as a percentage of total excise revenues has increased to 22 per cent from 16 per cent.

Deora also wanted natural gas to be treated as ‘declared goods’ and sought infrastructure status for oil and gas pipelines and LNG import projects. He demanded a reduction in the service tax on companies providing drilling and other logistic services to oil exploration companies.

The petroleum ministry is also seeking a shift to specific duties on fuel from the current mix of ad valorem and specific duties. The petroleum ministry's demand for infrastructure status to exploration business and oil and gas pipelines would entitle investors a 10-year income tax holiday.

While the petroleum ministry is clamouring for tax breaks and duty cuts, it is unlikely that all the demands of the ministry will be met. This is because the finance ministry considers the oil sector to be a cash cow and squeezes the maximum revenue from it.

With finance ministry mandarins giving top priority to higher revenue collections and reduced fiscal deficit, the petroleum ministry may find it hard to push through its demands.

The infrastructure status for pipelines is, however, expected to come through, a senior official said.

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