Specific, ad valorem duty mix likely for petroleum products

New Delhi, Jan 10 | Updated: Jan 11 2005, 06:29am hrs
The finance ministry is likely to settle for a combination of specific and ad valorem duties in restructuring the excise duty pattern for petroleum products.

According to finance ministry officials, the new structure would be put in place in the forthcoming Budget and would address the twin issues of price stability of petroleum products and certainty in revenue collections.

The officials said though the petroleum ministry has been pressing hard for a shift to specific excise duties to keep prices under control especially when global crude oil prices surge, the finance ministry had been opposing it on revenue considerations.

While ad valorem duties are levied in percentage over the cost and the customs duty paid on crude oil, specific excise duties are collected as a fixed levy in rupees per tonne. However, in the case of specific duties, the petroleum product prices are insulated from volatility in global crude oil prices. Not so in the ad valorem regime, where diesel and petrol prices rise with every rise in crude oil prices.

At present, the ad valorem rate on petrol is 23%, on diesel 8% and on kerosene 12%. In addition, petrol attracts a surcharge of Rs 6 a litre and a cess of Rs 1.50 a litre for roads. A cess of Rs 1.50 a litre is also levied on diesel for roads.

The officials said that a possibility being examined was to increase the surcharge element for petrol, diesel and kerosene and reduce the ad valorem rates. This way, the entire amount raised as surcharge remains in the Centres kitty and need not be shared with states.

With the petroleum sector accounting more than a third of indirect tax collections, the finance ministry was keen to stick to the ad valorem duty structure, the officials said. The recent surge in global crude prices and its effect on petroleum product prices here has, however, forced the government to re-examine the duty structure for the sector, the officials said.