The Telegraph
Since 1st March, 1999
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Two options on oil duty rejig

New Delhi, Dec. 13: The government is considering a proposal to recast duty on crude oil and petroleum products by reducing import duty and simultaneously raising excise levies.

If the government goes ahead with the plan, it could either have more revenues or offer marginal price cuts to consumers.

The panel on petroleum fiscal issues has worked out two alternative proposals to reduce the customs duty on crude, petrol, diesel, jet fuel, naphtha, industrial oils, bitumen and wax. Though oil marketing companies do not import petrol and diesel, a notional duty is charged while calculating prices.

The first plan is a 5 per cent cut in customs duty along with a 5 per cent hike in excise duty, which are on local manufactures.

The second proposal is a 2.5 per cent cut in customs duty along with a 2.5 per cent hike in excise duty.

The rejig takes the price to the consumer and the cost of crude as fixed.

Officials said the first plan gave a revenue gain of around Rs 1,830 crore and the second a gain of about Rs 1,250 crore

The government, if it accepts these proposals, could either have additional revenue or pass on the gains to consumers.

“Any pass through would be by way of marginal cut in final prices of petroleum goods,” officials said.

The sops carry with them political gains as assembly elections are scheduled in many states, including the key states of Uttar Pradesh and Punjab.

Even a small cut in petro-product prices could impact on the inflation rate.

In the past few months rise in petro-product prices has pushed up the inflation rate.

A fall in petro-product prices along with a good winter harvest could lead to a fall in the inflation rate. The major gain, however, is psychological.

A reduction in customs duty would also cut prices charged by oil companies on their books as these are calculated on the basis of international parity prices which include a notional customs duty.

Although oil marketing firms do not import petrol and diesel, they add a notional customs duty and shipping cost to calculate their cost price. The under-recoveries are also estimated on the basis of this higher price.

There is, therefore, a possibility of a rift between the finance ministry and the petroleum ministry on the issue.

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