For the first time in recent history, the Centre?s revenue from the oil sector this fiscal will be less than the subsidy outgo on petroleum products due to the stubbornly high crude oil price and the mid-year tax cuts to reduce its impact on the consumer.
This shows that contrary to popular belief, central taxes on oil are much less to blame for the high inflation witnessed this year.
The central government is expected to collect only R86,000 crore in revenue from the oil sector in 2011-12 while the subsidy bill for the year will be R91,333 crore. This contrasts with R1.36 lakh crore collected as revenue from the sector in 2010-11, against a subsidy of R44,000 crore.
The revenue includes those from all sources ? indirect taxes on fuel, corporate income tax, dividend, tax on dividend and profit petroleum. Pertinently, of the gross tax revenue, 32% is to be transferred to the states as per the Finance Commission formula, and so the Centre?s net revenue from the sector will be even less.
Traditionally, indirect taxes such as excise duty on petroleum products and customs duty on crude accounted for about 65% of the Centre?s gross revenue from the sector. A steep fall in indirect tax revenue is expected this fiscal primarily because the customs duty on crude was reduced from 5% to zero in June.
The removal of the import tax on crude coupled with a cut in excise duty (specific) on diesel by R2.60 a litre in June will reduce the Centre?s revenue from oil sector by R50,000 crore this year. This expected tax revenue falls short of the oil subsidy burden on the government, which bears two-thirds of the losses made by retailers IOC, HPCL and BPCL. The burden of the remaining subsidy is borne by upstream companies ONGC, Gail India and Oil India.
The Centre?s oil subsidy outgo has been roughly 25-35% of the total revenue from the sector in the last five years except for when it went up to 79% in the economic crisis year of 2008-09, which saw a commodity price boom. This year, the subsidy will be 106% of the revenue.
Economists said that the artificial suppression of fuel prices is getting reflected in government finances in a significant way now. ?Deregulating the price of fuel, particularly diesel, is the best solution for sustainable energy pricing in the medium term. I do not see any other option,? said DK Joshi, chief economist with rating agency Crisil.
The reversal of fortunes with respect to subsidy outgo and revenue from oil is not that surprising considering the fact that crude oil has been ruling at an average of $110 a barrel so far this fiscal compared with $85 a barrel last year.
Consumers too have borne price increases in petrol, diesel, cooking gas and kerosene as the companies passed on a part of their burden. But the unexpected beneficiaries of high oil price have been state governments that charge local levies as a percentage of the sale price. For example, states charge 20-30% local tax on petrol, while diesel attracts 10-25%. Prompted by the Centre, the governments of Delhi, Bihar, West Bengal and Goa have lowered their tax rates a bit but they are still being urged to shift to specific duties from ad valorem levies. The states collected R89,000 crore though various taxes and levies on oil products in 2010-11, up from R68,000 crore in 2008-09. This is apart from the 32% of the Centre?s tax revenue that they get.