House panel says this will cushion impact of spiralling crude prices

Our Bureau

Proposals

Replace ad

valorem component by specific component

Customs duty

on petrol, diesel should be cut to 5 per cent from 10 per cent.

New Delhi, May 30

The Ministry for Petroleum and Natural Gas has been asked by a Parliamentary panel to consider rationalisation of existing tax structure - excise and customs - on petroleum products to cushion the consumer from the impact of spiralling international crude price. The Standing Committee on Petroleum and Natural Gas has recommended that the total share of taxes and duties in the retail selling prices of commonly used fuel, including auto fuel should be rationalised.

Considering the fact that increase in fuel prices especially diesel would have cascading effect on the prices of various essential commodities affecting the common man at large, the panel has suggested that the increase in prices of such products should be kept at the minimum. As regards excise duties on these products, the panel noted that there exists a multitude of excise duties on petrol and diesel.

Ad valorem

Finding this a disturbing trend especially the ad valorem component of the excise duty, which makes the burden on the consumer more prominent, the panel has suggested that the excise duties on these products should be so structured as to ensure that the interests of the consumers are not compromised. It has suggested that the ad valorem component in the existing mix should be replaced by a single specific component.

Regarding customs duties, the panel felt that the levy is only mechanism to ensure fruitful gains to refining companies. The customs duties levied on products does not actually add to the revenues of the Government as product imports are almost nil owning to surplus refining capacity in the country, the panel observed. It has recommended that the customs duty on products, especially that of petrol and diesel, be brought down to five per cent from 10 per cent, to make it on par with the customs duty on crude, leaving no room for any differential at this level.

Disturbing trend

At present, the excise duty of petrol has a specific ad valorem rate of 8 per cent plus Rs 13 per litre. This includes a basic excise duty content, additional excise duty to fund road construction, a special excise duty component and a special additional excise duty as surcharge for national highway project. For diesel, apart from basic excise duty, there exists an additional excise duty. Consequently, the panel noted that 36 per cent of the retail selling price of petrol and 17 per cent of that of diesel comprises excise duty component.

This means, Rs 14.74 out of Rs 40.49 in the retail price of petrol and Rs 4.93 out of Rs 28.45 of diesel in Delhi could be because of the excise duty component alone, the panel noted adding that "This is a highly disturbing trend.''

(This article was published in the Business Line print edition dated May 31, 2006)
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