Proposal will bring down the burden of oil companies
An experts group headed by former Planning Commission member Kirit Parikh has recommended an incremental rate of taxes on higher crude oil price realisation from the nomination blocks of Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) to keep the government’s subsidy share in the range of Rs 19,780-23,340 crore at various levels of crude.
ONGC and OIL, the government-owned upstream oil companies, were given oil blocks on a nomination basis prior to the opening up of the sector in the 1990s.
| ROAD TO RECOVERY? | ||
| Product | Measures | Annual financial impact (in Rs cr) |
| Petrol | No under-recovery | 5,103 |
| Diesel | No under-recovery | 8,894 |
| PDS kerosene | A 20 per cent cut in allocation and increase of Rs 6 a litre | 8,874 |
| Domestic LPG | Increase of Rs 100 on every cylinder | 7,580 |
| Total | 30,451 | |
| Table gives estimates of reduction in under-recoveries on account of recommendation (for product prices at 2009-10 international parity) | ||
| BARREL OF TAXES For nomination blocks of ONGC & OIL | ||
| Price range ($/barrel) | Rate of tax* (% of incremental price) | |
| 60-70 | 20 | |
| 70-80 | 40 | |
| 80-90 | 60 | |
| Above 90 | 80 | |
Currently, the two companies along with GAIL India are bearing the under-recoveries of oil marketing companies (OMCs) on the sale of petrol and diesel. The under-recoveries on kerosene and LPG are supposed to be compensated by the government.
Prior to the current arrangement, the three companies had to shell out Rs 32,000 crore in the form of discounts to OMCs in 2008-09.
The committee has suggested market-linked prices for petrol and diesel. However, only a partial increase of Rs 6 a litre and Rs 100 on every cylinder of LPG has been proposed. It has also proposed a reduction in PDS kerosene allocation by 20 per cent.
This, however, still leaves an under-recovery from these two products. With the implementation of incremental tax rate for ONGC and OIL, the share of government subsidy towards kerosene and LPG can be contained at various price levels of crude. The government share, if the price of crude oil remains at $70 a barrel will be Rs 19,780 crore, at $80 a barrel, it will be Rs 22,760 crore, and so on.
The panel, however, has not recommended a windfall profit tax, since it felt the petroleum ministry ought to have flexibility in mopping up incremental incomes of ONGC and OIL for the purpose of meeting a part of the under-recoveries of OMCs on the sale of domestic LPG and kerosene reserved for the public distribution system.
The B K Chauturvedi Committee formed after oil prices ruled at a historic high of $147 a barrel in July 2008, had recommended a 100 per cent windfall tax on a price level of $75 a barrel. It also said that once the adjustment of prices of automotive fuel was completed, the tax should be either annulled or reset downwards to equal the fuel subsidies made available only to families below the poverty line for kerosene and LPG.
