Specific duty on petro products likely

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New Delhi, March 19: The finance ministry is considering shifting to a regime of specific excise duties for petrol and diesel from the present system of a combination of ad valorem and specific duties. Such a shift in levy was recommended by the Rangarajan panel on pricing and taxation of petro products, as one of the ways to salvage the oil marketing companies from the current phase of “under-recoveries.”

The shift would, however, come with a hike in fuel prices, which the government reckons, is inevitable, and is merely waiting for five state Assembly elections to be over.

According to official sources, the finance ministry is, however, averse to effecting a major hike in fuel subsidies, despite petroleum minister Murli Deora’s demand for the same. Fuel subsidy is budgeted at Rs 3,080 crore for 2006-07. The finance ministry thinks it could partly insulate the oil marketing companies from the adverse impact of spiralling crude oil prices, through specific excise duties on petrol and diesel.

The officials said, one reason for the ministry’s inclination to endorse the Rangarajan panel’s proposal for specific excise duties was it was reconciled to shrinking excise revenues anyway.

Petroleum sector accounts for over 40% of the government’s budgeted excise revenue of Rs 1.1 lakh crore in 2005-06.

Thanks to surging imports and expansion of the service tax base, the ministry hopes to offset the near flat growth in excise receipts next fiscal by huge increases in the customs and service tax collections.

In 2005-06 too, there has been a major spurt in customs collections from the petroleum sector, while the excise revenue from the sector remained stagnant.

Even as the excise duties on petrol and diesel continue to have an ad valorem component (8%), the year-on-year increase in collections from the petroleum industry till February this fiscal, was just about 15% against the originally targeted 20%.

The collections from the oil industry did not meet the projections because the volume remained stagnant.