New Delhi, March 3: The prices of petroleum products may go up further, with the budget withdrawing a service tax exemption on their transport by rail.
Oil companies use the railways to carry about 35 per cent of their diesel, LPG and kerosene supplies.
Sources said the oil firms would have to shell out an additional Rs 1,000 crore as service tax of 12 per cent and another Rs 500 crore for the 5.79 per cent hike in railway freight charges.
“We follow a fortnightly average cost for revising the retail price of petrol and diesel. For LPG and kerosene, it is a monthly average. So, we have to wait (before passing on the hike),” a senior IOC official said.
The service tax will come into effect from April and a decision will be taken only then, the official added.
“Surprised to see the withdrawal of service tax exemption on the transportation of petroleum products as they are subsidised and a pass-through to consumers will be inflationary,” said Manish Mishra, executive director of law firm Khaitan & Co.
“While the service tax will boost revenues, it will add to the under-recovery of the oil companies and ultimately increase the subsidy burden,” Mishra said.
For the current fiscal, fuel subsidy allocation had been raised 122 per cent to Rs 96,879.87 crore. However, for fiscal 2013-14, the subsidy allocation has been cut 32 per cent to Rs 65,000 crore. The government is betting on its decisions to cap subsidised cooking gas (LPG) to nine per year and periodically raise diesel prices.
While keeping the service tax rate unchanged at 12 per cent, finance minister P. Chidambaram expects the levy to yield 35 per cent more revenue at Rs 1.80 lakh crore in 2013-14 over the revised estimate of 2012-13, because of a immunity scheme.
Service tax collections are projected to grow 7 per cent to Rs 1.33 lakh crore in the revised estimate of 2012-13 from the budgeted Rs 1.24 lakh crore.
The tax is the lowest contributor to the exchequer even though the sector accounts for the highest share of the country’s gross domestic product (GDP).
It will still be the least contributor in 2013-14, but will rapidly catch up with customs and excise levies, which are projected to yield Rs 1.87 lakh crore and Rs 1.97 lakh crore, respectively.
Chidambaram expects around one million evaders to come forward to pay service tax. They will have to file returns since October 1, 2007, and will be spared penalty and interest rates.
The share of services in GDP at factor cost (at current prices) increased from 33.3 per cent (1950-1951) to 56.5 per cent in 2012-13, according to the advance estimates of the Central Statistic Organisation. This will increase to 64.8 per cent, including construction.