Turnover tax imposed by the Kerala government could push the Kochi-based public sector oil refining and marketing company, Kochi Refineries Ltd (KRL), into the red in the post-administered pricing mechanism (APM) regime, according to company officials.
Under the current APM regime, turnover tax paid by the company to the state is reimbursed from the oilpool account of the Centre, through the Oil Co-ordination Committee.
By March 31, 2002, APM would cease to exist for all petroleum products, following which, the incidence of the state tax will be fully on KRL.
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At the current price levels, this would impose an additional burden of around Rs 80 crore per year on the company. KRL paid a turnover tax of Rs 131 crore in 2000-01.
It posted a net profit of Rs 109 crore on a turnover of Rs 7,136 crore last year. KRL had already approached the state government for a recast of the tax structure. The proposal is said to be under consideration.
The company has urged the government to abolish the 4 per cent turnover levy currently imposed on it. It has also asked suggested that the sales tax rates could be enhanced suitably to compensate the revenue loss for the state.
A top company official told Business Standard from Ambalamugal, Kochi, that The state had imposed the turnover tax in 1987 at the rate of 0.5 per cent of turnover on dealers and manufacturers in the state.
"All except KRL and the liquor traders were exempted from this tax in different stages and the levy for KRL now stands at 4 per cent." he added.
Company chairman K L Kumar had during the company's annual general meeting, said: "The refinery-specific turnover tax is an area of serious concern. During the period when APM was in vogue the turnover tax paid by KRL was reimbursed from the oil pool account from a surcharge on sales tax collected from consumers by marketing companies and deposited in oilpool accounts."
He said when the petroleum sector is deregulated, the oilpool mechanism would cease to exist, and consequently there would be no more reimbursements. "At current price levels, this would impose an additional burden of around Rs 80 crore per year on KRL, which would almost certainly push the company into red," Kumar had said.
Analyst Satyam Agarwal of Khandwala Securities said company has no option but to put up with the situation. "Though KRL has approached the Kerala government seeking a recast of tax structure, it cannot stay away from paying taxes," he added.
The company has made it clear that since its proposal to the government for the restructuring of taxes is revenue neutral, it will have no effect on the prices of petroleum products.
This proposal covers the interests of the state exchequer and the consumer and works out as mutually beneficial to the state and KRL, officials said.