Duty hikes on fuel not 'revenue neutral'

Govt to gain Rs 2,894 cr from 'additional revenue earnings' after the excise hike.

Contrary to Finance Minister P Chidambaram's claim that changes in Customs and excise duties on petroleum products effected during the budget exercise will be "revenue neutral", figures from his ministry have a different story to tell.

They show that the government will gain Rs 2,894 crore from "additional revenue earnings" after the excise duty hike on petrol and diesel.

According to a correspondence between the ministry of finance and the ministry of petroleum and natural gas dated April 12, 2005, the "additional revenue earnings, inclusive of that on account of increase in additional excise duty (cess), during 2005-06 as a result of hike/ restructuring in excise duty on petrol and diesel" are Rs 3,387 crore for petrol and Rs 8,687 crore for diesel.

This is in contrast to the losses owing to Customs duty reduction, which the correspondence puts at Rs 5,480 crore for crude oil, Rs 1,500 crore for petroleum products and Rs 2,200 crore because of the excise duty reduction on LPG (domestic) and Kerosene (PDS). This shows that the exchequer is set to profit by Rs 2, 894 crore.

These findings are likely to be taken up by the Left parties to justify their demand for a rollback of excise duties announced during the Budget.

Chidambaram had announced a combination of specific and ad-valorem excise duty for petrol and diesel in the Budget. Excise duty was increased to 8 per cent and Rs 5 a litre for petrol against 16 per cent, earlier.

In the case of diesel, the levies increased by Rs 1.75 since excise duty was increased by Rs 1.25 a litre while the ad-valorem rate was left unchanged at 8 per cent.

The road cess was increased by 50 paise. All these increases have been absorbed by the oil companies since the retail prices of fuel have not been hiked.

In a statement released 10 days ago, Prakash Karat, general secretary, Communist Party of India (Marxist) had attacked the finance minister for being "clever" in having recalibrated excise duties on petrol and diesel when he announced the reduction of import duties on crude oil.

Karat had said that as a result of the excise duty hike, the retail prices would increase by Rs 1.13 for diesel and Rs 2.23 for petrol.

The finance ministry figures also lend currency to oil company claims that the changes in Customs and excise duties for petroleum products is not revenue-neutral.

Oil companies say, on the one hand, their refinery margins have fallen owing to a reduction in import duties. On the other, they have been left to bear the increase in excise duties on petrol and diesel, which squeezes their retail margins.

The companies have, therefore, been pushing for an increase in retail prices of petroleum products.

Excise duties on petrol and diesel were fixed "as a combination of ad valorem and specific duties" as the Budget exercise proposed. Customs duty on crude oil was reduced from 10 per cent to 5 per cent. For LPG (domestic) and kerosene (PDS), the duty was made nil. The road cess on petrol and diesel was increased by 50 paise.