taxes have an impact on the losses calculated by fuel retailers that, in turn, has a bearing on government subsidy.
There has been criticism that the basic customs duty on petrol and diesel gets built into the marketing loss calculations of the two auto fuels although these are not imported but are produced at local refineries. Crude oil attracts only a Rs 50-a-tonne national calamity contingency duty (NCCD) and no basic customs duty. However, both petrol and diesel attract a 2.5% basic customs duty and a 3% education cess. That is the effective tariff protection given to domestic refineries against any possible import of finished petroleum products. Only state-run refineries get that protection as private refiners currently do not retail fuel in India due to strict price regulation.
Experts say the marketing losses of public refiners are questionable because they use the trade parity prices (weighted average of 80% import and 20% export price) of the fuel in calculations, although they do not import fuel. Instead, they extract finished products at own refineries from crude oil, on which they have paid far less import duty.
Oil companies, however, do not agree with this argument. They say that both domestic cooking gas and kerosene sold through public distribution system do not attract any customs duty but they have to pay Rs 50 a tonne NCCD on crude oil imports. That is, the import price used to calculate the marketing losses on these two products do not have customs duty component although they pay some taxes on crude. The higher tax element on the under-recovery of petrol and diesel offsets the absence of tax in the case of LPG and kerosene, which are also derived from tax-paid crude.