Customs duty on crude oil may not be reduced

BUDGET SPECIAL

The finance ministry is unlikely to cut the Customs duty on crude oil in the forthcoming Budget. At present, the government levies a 10 per cent duty on crude oil imports and a 20 per cent duty on import of petroleum products.

According to senior finance ministry sources, a cut in the Customs duty on crude oil will severely dent collections.

Last fiscal, of the Rs 10,670 crore Customs revenue from the petroleum sector, the lion's share of Rs 7,619 crore came from the Customs duty on crude oil. Reducing the duty on crude oil to 8 per cent alone will cost the exchequer over Rs 1,500 crore.

The sources said in recent meetings between Petroleum and Natural Gas Minister Mani Shankar Aiyar and Finance Minister P Chidambaram, several alternatives, including rationalisation of the Customs duty on crude oil and a further cut in the excise duties on petrol and diesel, were discussed. "The revenue impact weighs against a cut in the Customs duty on crude oil," a source told Business Standard.

The sources also said the government would not contribute to the price stabilisation fund, being proposed to mitigate the effects of increasing global crude oil prices on domestic consumers of petroleum products. "It is unlikely that any money will be set, apart in the Budget for the fund," the source said.

The corpus of the Fund could be made up from contributions by the oil public sector undertakings. "It could either come as a special dividend by some oil PSUs, or by earmarking a certain percentage of the net profits," the source said.

With global crude oil prices hitting the roof at over $40 a barrel, the Centre recently increased the prices of petrol, diesel and LPG by Rs 2, Re 1 and Rs 20, respectively.

Simultaneously, it halved the excise duty on LPG to 8 per cent and cut it on petrol from 30 per cent to 26 per cent, and on diesel, from 14 per cent to 11 per cent, to mitigate the effect of surging crude prices.

The Vijay Kelkar Taskforce's report on indirect taxes had recommended that the customs duty on crude oil and petroleum products be cut to 8 per cent and 15 per cent, respectively, in 2003-04.

In 2004-05, the report suggested that duty on crude be cut further to 5 per cent and that on petroleum products, to 10 per cent duty.