Govt for cess to pay for oil

Written by Energy Bureau | New Delhi, May 27 | Updated: May 29 2008, 04:44am hrs
Taxpayers across all slabs are likely to help pick up the bloating tab for the countrys dearer oil imports. The government is contemplating the levy of a 3-5% cess to finance some of the oil subsidy bill, which is projected to balloon to Rs 2.25 lakh crore by the end of this fiscal. The cess will be slapped on both income tax and corporate tax.

The proposal to levy a cess or a surcharge is part of a comprehensive bailout package being cobbled together for cash-strapped oil marketing firms. Other components of the package include a fuel price hike, adjustment of excise and customs duties, besides the further issue of oil bonds.

The increase in petrol and diesel prices is expected to be Rs 2-5 a litre. The package was discussed at a meeting between finance minister P Chidambaram and petroleum minister Murli Deora on Tuesday. Deora confirmed that the option of a cess was on the table.

Nothing has been finalised. We discussed various options. As the oil companies are in a precarious state, we urgently need to find solutions, Deora said. He also expressed hope that a decision would be taken in the next seven days.

The imposition of a cess on income and corporate tax will need an amendment to the Finance Act by Parliament. However, the government can issue an ordinance and ratify it in the monsoon session of both Houses. Each percentage rise in the income and corporate tax rates would yield around Rs 3,500 crore, so a 3-5% cess would yield anywhere between Rs 10,500 crore and Rs 17,500 crore.

Collections from the new cess would compensate for the revenue loss on account of the proposed duty cuts and help temper a spike in retail fuel prices. Without the cess, the petroleum ministry has said the rise in prices would have to be Rs 10 a litre for petrol, Rs 5 a litre on diesel and Rs 50 for each LPG cylinder.

Oil marketing firmsIndian Oil, HPCL and BPCLhave already told the government that they would not be able to sustain their losses for long, and that an immediate decision needs to be taken in order to avoid shortages at petrol pumps and quotas for LPG and kerosene. We dont want to see a scarcity of petroleum products, particularly kerosene and LPG, said Deora.

The minister also called on Prime Minister Manmohan Singh and informed him that there was a limit to the state-run oil marketing companies capacity to absorb oil bonds, as well as the contribution by those having upstream operations.