The Hindu Business Line : Private oil majors pitch for specific excise duty

WITH the Government keen to evolve a long-term pricing policy for petroleum products, private oil majors are proposing a host of structural changes including alteration of the basis of levy of duties and inclusion of petrol and diesel under the value added tax (VAT) regime.

A key submission made before the Dr C. Rangaranjan Committee by them relates to the demand for switchover to a specific excise duty regime for petroleum products.

Oil sector players have been making a case for a simple and transparent duty regime that lets market forces determine prices. They have also favoured a regime that does not discriminate between different producers on the basis of ownership or any other criteria. Arguing for specific excise duty on petroleum products, they have said that such a duty regime could provide a cushion during higher price volatility situations and facilitate revenue buoyancy through demand growth.

They have also highlighted the existence of anomalies in the customs duty structure. They have pointed out that intermediates (high speed diesel, fuel oils) were taxed at a rate more than that of the final products (liquefied petroleum gas (LPG) and kerosene). While customs duty on LPG/SKO was currently pegged at zero per cent, the duty on diesel and fuel oil stood at 10 per cent. They have argued that a lower duty on SKO as compared to diesel would encourage adulteration.

On VAT, the private players have made a case for inclusion of petrol and diesel in the regime with a uniform rate. Currently, sales tax rates between states vary from 8 per cent to 31 per cent in respect of diesel. For petrol, it varies from 20 per cent to 34 per cent. In 2004-05, states have collected Rs 39,000 crore (Rs 32,849 crore in 2003-04) as sales tax.

The VAT Panel has however been contending that petroleum products cannot be brought under VAT, as they are still under an administered price regime.

Of the Rs 60,666 crore collected through revenues on crude and petroleum products in 2004-05 by the Centre, excise alone accounted for Rs 43,145 crore, which works out to be 71 per cent of the total revenues from these products. For 2004-05, the Centre collected customs duty of Rs 3,489 crore (Rs 3,091 crore in 2003-04) from petroleum products and Rs 9,761 crore (Rs 7,491 crore) from crude.