Refining firms may lose Rs 5350 cr post-duty cut

Domestic refining companies are likely to suffer a potential revenue loss of Rs 5,350 crore on an annualised basis due to the cut in customs duties on petrol, diesel, kerosene, and liquefied petroleum gas, a senior petroleum ministry official said on Wednesday.

The government on Wednesday cut custom duty on petrol and diesel to 15 per cent from 20 per cent and on kerosene and LPG to 5 per cent from 10 per cent.

Excise duties were also cut on petrol, diesel, and kerosene. "Reduction in customs duties means that refining companies will lose around Rs 5,350 crore in revenues on an annualised basis," the official said.

He said that Indian Oil Corporation's (IOC) potential revenue loss from refining operations was estimated at Rs 2,450 crore, while Reliance Industries would lose around Rs 450 crore.

Reliance operates a 33-million-tonne refinery at Jamnagar in Gujarat. The rest of the revenue losses would be borne by Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

Indian oil companies do not import petrol, diesel, and kerosene but only import crude oil on which they pay a 10 per cent customs duty. However, refining companies get an import parity price when they sell finished products like petrol and diesel to their marketing arms or to other retail distribution companies.

The import parity price includes the cost of production and a notional customs duty, which is now 15 per cent in case of petrol and diesel and 5 per cent in case of LPG and kerosene.

The cut in customs duty means that revenues of refining companies will go down.

The official said since only a very small portion of finished products are imported, the government would lose a revenue of Rs 218 crore on an annualised basis due to cut in customs duties.

"The revenue loss for the government is much more due excise duty cuts at around Rs 3,920 crore (for the full year)," he said.

Out of this, the government is estimated to lose Rs 2,620 crore due to cut in excise duty on diesel to 8 per cent from 11 per cent, while it will lose another Rs 580 crore on petrol where excise duty has been cut to 23 per cent from 26 per cent.

In the case of kerosene, the per annum loss is Rs 720 crore where excise duty has been reduced to 12 per cent from 16 per cent. The government is estimated to lose revenue of Rs 2,500 crore due to these excise duty cuts for the remaining part of the current financial year 2004-05 (April-March).