Ministry seeks review of tax on petro-products

The Petroleum and Natural Gas Ministry is seeking major revamp in tax structures of petroleum products which would reduce the burden on consumers on one hand and would be revenue-positive for the government too.

In its recommendations for the 2007-08 Budget, the Ministry has proposed to cut the customs duty by 5 per cent in order to reduce the burden of high crude oil prices on consumers. To offset these losses, it has proposed an increase in the excise duty structure on petroleum products.

Currently, 5 per cent customs duty is levied on crude oil, while 7.5 per cent duty is charged on petrol and diesel. Aviation turbine fuel (ATF) attracts 10 per cent duty and naphtha 5 per cent customs duty.

The Petroleum Ministry has recommended that customs duty on naphtha and crude oil be scrapped, while that for automobile fuels be cut to 2.5 per cent. Also, duty on ATF is proposed to be reduced to 5 per cent.

The revenue losses from this would amount to Rs 9,041 crore, the suggestions point out.

The government says that this loss can be offset by an increase in excise duty. Excise duty for 2006-07 (for Delhi up to November 30, 2006) Rs 15.11 per litre of petrol and Rs 5.19 a litre of diesel. This includes a 8.16 per cent duty on ex-factory price plus Rs 13.26 per litre of petrol and Rs 3.32 per litre of diesel.

The proposal for the next Budget is that the variable factor of crude oil prices change be negated, and a fixed excise duty of Rs 15.92 per litre of petrol and Rs 6.08 a litre for diesel be charged. The Ministry also wants the duty on naphtha to be raised to 22.08 per cent from the present 16.32 per cent.

The trend is towards stablisation of the tax structure for all petroleum products. "The government wants to bring the retail prices of petroleum products out of the ambit of fluctuating crude oil prices," sources in the Petroleum Ministry said.

The government will stand to gain Rs 10, 872 crore through the increase in excise duty. Taken with the Rs 9,041 crore loss on slashing customs duty, Rs 1,831 crore will be added to the government kitty per unit of petroleum products sold in the country under the revised rates.

"The suggested duties structure has the dual advantage of increasing revenues, while negating the impact of fluctuating global crude oil prices," a senior Ministry source said.