Rangarajan panel for mild taxes on oil

The C Rangarajan Committee on the pricing and taxation regime for petroleum products is learnt to be of the view that the cost-plus method of compensating public sector oil marketing companies is not a suitable model, keeping in view their strong focus on efficiency and globalisation.

It is also expected to recommend moderate taxation for the sector, better targeting of subsidies at households below the poverty line (BPL) and gradual price corrections instead of an "one-time" increase.

On the issue of subsidies on PDS kerosene and domestic LPG, the committee has underlined the need for carrying out price corrections "to bring down the huge losses being sustained by the oil companies on this front".

The committee's hand may have been strengthened due to state governments not voicing any objections to hiking of LPG prices in view of the "limited use of LPG by BPL households".

Rangarajan was clear that "there is need for a subsidy which can be targeted at such households and data available with the Planning Commission can be utilised for this purpose".

In fact, Rangarajan's comments on taxation at one committee meeting gave a clear hint. In that meeting, he elaborated that "taxation should strike a balance between government revenue and consumer interest. It should not result in extra gains to the exchequer in times of volatile international prices".

An insight into the committee's report is also available from the fact that the finance ministry told the committee that export parity pricing, with regard to alternative models for pricing of sensitive petroleum products, "cannot be legally enforced". But it was willing to suggest this methodology to petroleum PSUs.

Taking this position, the finance ministry also pitched for a clear and unambiguous policy on tariffs applicable to the petroleum sector.

Planning Commission Member Kirit S Parekh had suggested an alternative "trade parity pricing" methodology that would make available import parity to net import products and export parity to those products that were in a net export position.