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Thursday, Jan 10, 2002

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Excise to impact petro products -- Retail buyers may escape

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THE Government is set to raise excise duties on mass consumption petro products to mop up revenues up to Rs 2,000 crore in the remaining three months of the current fiscal. However, retail consumer prices will not be raised, according to official sources.

The Government armed itself with an ordinance on Wednesday to ramp up the excise duty on commodities beyond 100 per cent.

Faced with a decline in revenue mop-up, the Government is planning to "cherry pick" on petro products, which contribute around a third of the indirect tax collections, in order to shore up flagging tax collections.

The collections on the petro products front have not been encouraging either, with the average crude procurement price hovering around $23-24 per barrel over the last nine months as against the Budget estimate for the 2001 fiscal pegged at $25 per barrel.

The impact of the proposed hike in excise duties will be borne by the petro marketing companies and not the consumer, since the Government does not plan to raise retail consumer prices.

The oil pool deficit currently hovers around Rs 12,000 crore.

Due to soft crude prices, the oil pool account has been witnessing an inflow of around Rs 1,000 crore per month. At this rate, the deficit is estimated to drop to around Rs 8,000-9,000 crore at the end of the current fiscal.

If the Government were to mop up revenues to the tune of Rs 2,000 crore from a fresh dose of taxes on petro products, the oil pool deficit will increase to that extent.

In such a scenario, to adhere to its commitment to dismantle the administered pricing mechanism in the petroleum sector on March 1, the Government will need to issue an additional Rs 2,000 crore sovereign-rated bonds to be serviced at Treasury bill rates.

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