FinMin dumps oil price band plan

Ministry says move to lead to ad-hocism, favours trade discounts from stand-alone refineries

The finance ministry has turned down the petroleum ministry's proposal to restore the price band mechanism for a change in petroleum prices on the ground that it would lead to ad-hocism in fiscal policies and will have serious macroeconomic consequences. Instead, North Block has favoured trade discounts from stand-alone refineries, particularly in the private sector.

Rejecting the demand for a cut in excise duty for petroleum products, the finance ministry said it anticipated a shortfall of Rs 3,628 crore in indirect tax collections from the petroleum sector, targetted at Rs 56,000 crore this year.

While the revenue department is hoping to get an additional Rs 5,833 crore Customs duty, it is staring at a shortfall of Rs 9,368 crore in excise collections from the oil sector.

On the direct tax front also, the total corporate tax from the refining, petrochemical and oil marketing sector during 2004-05 declined to Rs 1,639 crore from Rs 3,842 crore in 2003-04. Collections was also likely to be meagre this year, in the wake of losses suffered by oil companies.

The finance ministry said it expected to collect Rs 2,200 crore in direct taxes during 2005-06, while the advance tax collection during June 2005 was Rs 30 crore, which came from the Indian Oil Corporation. The target of Rs 520 crore from dividend distribution tax was also unlikely to be met.

The ministry also said a Re 1 reduction in excise duty on petrol and diesel along with a Rs 3 increase in prices would result in a net loss of Rs 2,850 crore to the exchequer.

Last July, the government had granted oil marketing companies the freedom to fix their retail prices in accordance with the previous fortnight's average international price for petrol and diesel without the approval of the government, provided it was within a reasonable band.

The price band was set at plus and minus 10 per cent around the last three months' rolling average prices and last one year's rolling average prices.

It was also decided that the finance ministry would reduce excise duty rates of petrol and diesel in consumer interest in case C&F prices breached the celing due to high volatility in international prices. The petroleum ministry would inform the finance ministry in case the band breached the floor.

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Oil's not well

Finance ministry anticipates a shortfall of Rs 3,628 crore in the indirect tax collection from the petroleum sector, targeted at Rs 56,000 crore this year

Corporate tax from the refining, petrochemical and oil marketing sector during 2004-05 declined to Rs 1,639 crore from Rs 3,842 crore in 2003-04