The government has decided to do away with the ad valorem duty structure and levy specific excise duty and countervailing duty (CVD) on all petroleum products for 2002-03. Finance minister Yashwant Sinha is expected to announce this in the coming Budget.
These specific duties will be equivalent to 32 per cent duty on petrol and aviation turbine fuel (ATF), and 16 per cent on the remaining petroleum products excepting kerosene sold through the public distribution system (PDS), domestic liquefied petroleum gas (LPG) and naphtha for fertiliser and power sectors.
For these products, the excise duty rate would be zero, or at best equivalent to eight per cent. The existing prices will be taken as base for converting the ad valorem excise duty rates to specific rates.
Ad valorem duties are linked to the price of a product and hence expressed in terms of percentage of the price of a product. Specific duties are a specific levy on a product linked to its volume. In an ad valorem duty structure, the government has the benefit of additional revenue buoyancy as a result of rising prices, while in a specific duty regime, revenue mobilisation does not suffer even when prices fall.
The duty structure is being changed since the government is of the view that the ad valorem excise duty structure accentuates the volatility in the prices of petroleum products besides creating anomalies in the applicability of duty on domestic products vis-a-vis imported products (CVD) in relation to freight components included in price.
Therefore, the finance ministry has decided that for 2002-03, it would levy specific excise duty on all petroleum products.
