The finance ministry is likely to retain the zero percent customs duty on crude oil and the 2.5% import duty on petrol and diesel for the financial year 2012-13 as well, considering the huge lossess which oil marketing companies IOC, HPCL and BPCL are incurring on account of selling fuel below their landed cost.
A finance ministry official said that that restoring higher taxes on oil is not a viable option in the current context despite the government’s financial woes.
The import duty on crude as well as on finished products were reduced last June so that oil companies get better realisation of retail price and lower their losses from selling diesel, LPG and kerosene. The 5% duty cut was estimated to cost the government R26,000 crore this fiscal.
Even after the duty cut and the price increase in diesel, LPG and kerosene, the companies are expected to incur a loss of R1,40,000 crore by the end of this March as crude price remains stubbornly high at close to $110 a barrel and the rupee remaining weak against the dollar. Raising the duty in this context would hurt either oil marketing companies or the consumers if it is passed through to the retail price. The code of conduct in the wake of assembly polls makes it harder for the government to raise retail price at this juncture without the Election Commission of India’s consent, said an oil ministry official, who asked not to be named.
Oil sector, which has traditionally been a revenue earning sector, has burned a hole in the state’s coffers this fiscal due to tax cuts and higher subsidy requirement. In fact, for the first time in five years, oil subsidy requirement from the state is set to exceed the revenue earned from the sector in 2011-12. The extra subsidy outgo, mainly on oil and fertilisers and the less than expected tax receipts is likely to widen the fiscal deficit close to 6% this year.
