Fuel-neutral tax on the cards

TIME RIGHT TO RESTRUCTURE OIL COMPANIES: CHIDAMBARAM

Finance Minister P Chidambaram today said the government intends to put in place a transparent tax and subsidy regime for the petroleum sector.

"A large proportion of the revenue is derived from the oil industry. It is a paradox that you tax the product and subsidise the same product. There should be a transparent and fuel-neutral tax regime and a transparent subsidy regime.

"Any departure from the tax regime should be avoided and the only exception should be made in cases of environment-related issues," Chidambaram said at Petrotech 2005.

When asked about the recommendations of the committee under Chief Economic Advisor Ashok Lahiri to suggest changes in the duty structure for the oil sector, the minister said that the report had not reached him.

"It has been submitted to the ministry and will come to me in a few days," the minister told reporters after his address.

On oil prices he said, the government was watching the situation very carefully as prices had still not reached the comfort zone.

"Oil prices flatter to deceive. They appears to go down and then go up again. So, one has to watch very carefully. That's why I said we are in a region where we cannot sit back and breathe easy," he said.

The Union finance minister said that despite the high international crude prices, the Indian economy had shown resilience in meeting the crisis.

"Because of the strength of the economy, we managed it. But the resultant inflation was entirely imported," he said.

Chidambaram said that inflation was at 5.79 per cent compared to 6.4 per cent last year, when the National Democratic Alliance was in power.

"We have raised only one cheer for inflation coming down, we will wait for the second cheer and then the third," he said.

In his address, the minister also said there was a need for greater competition in the oil industry and consolidation was the need of the hour.

"While primacy of the public sector has paid huge dividends in the past, (but) given the gap (in production and consumption level), technological challenges and greater dependence on oil and gas, there is a need for greater competition and consolidation," he said.

On restructuring, Chidambaram said that there were historical reasons for letting some companies remain small and independent. "But the time has come to look at these companies to look at ways of restructuring them," he said.

He also said that companies needed to make a frontal attack on costs.