Cess under the Oil Industry Development Act to be hiked.
States cannot charge more than 4 per cent VAT/sales tax for LPG.
New Delhi, Feb. 28
The state-owned oil companies, which were expecting the Finance Minister, Mr P. Chidambaram, to wield a magic wand to rescue them from the impact of the spiralling international crude prices seem to be a disappointed lot, as the Budget has not addressed some of the key issues concerning the sector including change in duty structure, and petroleum product pricing.
The Finance Minister expressed his concern on targeting the subsidies to the more deserving segment of the society, and urged for evolving a consensus. To cushion the impact of oil prices on the bleeding oil marketing companies (OMCs) and to ensure that States also bear a portion of the burden of high prices of petroleum products, the Budget proposes to include liquefied petroleum gas (LPG) in the list of declared goods under Central Sales Tax (CST) Act.
It has also proposed an increase in the cess under the Oil Industry Development Act, which would be absorbed by the oil producing companies. Besides the declared goods status for domestic LPG, the only other positive aspect for the oil sector was pipeline projects for transportation of crude oil, petroleum products and natural gas being notified as project imports. The Budget proposes to extend the concessional project rate of 10 per cent to pipeline projects for transportation of natural gas, crude petroleum and petroleum products.
LPG in declared goods list
Currently, States are taxing LPG at high rates. Thus, to ensure that they also bear a portion of the burden of high prices of petroleum products and in order to moderate the price of LPG, the Budget has proposed to include LPG in the list of declared goods under CST Act.
This implies that no State can charge a VAT/Sales Tax of more than 4 per cent. Currently, LPG is under VAT at 12.5 per cent. Total LPG VAT/Sales Tax collection is around Rs 2,000 crore. Effective rate of taxation is now 12 per cent. The uniform floor rate is 8 per cent, however, on an average non-VAT States are levying 12 per cent. The move though would lead to dip in collection of State revenues, is expected to offer cushion to the OMCs.The petroleum subsidy for 2007 has been estimated at Rs 3,080 crore in the Budget.
Hike in cess amount
Another proposal in the Budget is to increase the cess for domestically produced petroleum crude under the OID Act from Rs 1,800 per tonne to Rs 2,500 per tonne. This increase is to be absorbed by the oil producing companies and would have no impact on retail price of petroleum products.
The ONGC Director, Finance, Mr R.S. Sharma,said this would have a negative impact on the company's margins. ONGC will have to shell out about Rs 1,600 crore more to the Government because of this proposal. In 2004-05 ONGC has paid a total cess of Rs 4,305 crore.