Oil levy system may change

Task force favours shifting to specific excise duty

The high-level task force to review the tariff structure on petroleum products is in favour of shifting the excise duty structure from ad-valorem to specific tariff values to provide greater certainty to revenue projections.

The move would require an amendment to valuation rules.

The task force, headed by Chief Economic Adviser Ashok Lahiri, has until the end of the month, to finalise its report.

Senior government officials told Business Standard that the task force was of the view that a change from the ad-valorem structure was necessitated in view of the frequent fluctuations in crude oil prices.

They, however, said that the recommendations of the task force would be implemented only in the next year's Budget. "While the change in tariff structure is not likely to lead to an increase in the revenue mop-up, it would help in computation of the revenue from petro-products, which would remain consistent irrespective of the price situation," an official said.

Ad valorem duties are levied in percentage over the cost and the Customs levy paid to the government, and increases with every rise in cost.

However, under the specific duty structure, a fixed levy "" expressed in rupees per tonnes "" is charged, which does not fluctuate with the cost and gives the government predetermined revenues.

The petroleum ministry has been making a case for shifting to specific duties, but the finance ministry has not agreed to it since 45 per cent of the government revenue flows from the petroleum sector.

The current spike in international prices has seen the government kitty increasing by about 60 per cent, said officials. The oil ministry wants the entire excise duty structure be made specific so that the duties do not have a cascading effect when the cost of raw material rises.

The government currently levies 10 per cent Customs duty on crude oil imports and the ad valorem excise rates on petroleum products amount to 23 per cent for petrol and 8 per cent for diesel and other products. Kerosene attracts 12 per cent of excise.

In addition, petrol also attracts specific levies "" Rs 6 per litre 'surcharge' imposed in the 2002-03 Budget and Rs 1.50 per litre cess for funding highway development.

Diesel, too, attracts Rs 1.50 per litre specific road cess. Besides, state governments impose other taxes, which includes sales tax and octroi and in some cases, additional cess.

The seven member committee which includes CBEC joint secretary Gautam Ray, joint secretaries in the oil ministry and DEA consultants and advisors was set up by Finance Minister P Chidambaram in September to take a comprehensive look at the problems in the existing duty structure of petro products.

The government has made a commitment under the fiscal policy statement under the Fiscal Responsibility and Budget Management Act to watch the situation on international crude oil prices and make adjustments when required.

The taskforce on the FRBM headed by Vijay Kelkar has stated that levy of excise duty at ad valorem rates on petro-products induces oil prices risk for government revenues because if the revenue target for the future but the oil prices drop, then the government could miss the target and be forced to consider ad-hoc measures.