News Release Details
Oil ministry seeks tax revamp to fight rising crude
New Delhi 26-Sep-2007
The petroleum ministry wants a restructuring of taxes on petroleum products to remove anomalies in pricing. The petroleum planning and analysis cell (PPAC), the ministry's technical wing, has recommended a judicious mix of reduction in excise duties and state taxes, along with initial moderating of consumer prices of fuels. It is of the view that minor revisions in fuel prices are not sufficient to handle the impact of burgeoning global crude oil prices on the domestic prices of petroleum products. Taxes constitute 54% and 32% of retail selling prices of petrol and diesel, respectively in Delhi and needs to be reduced to reasonable levels.PPAC’s comrnents sent on September l5 to the Prime Minister's energy co-ordination committee (ECC), are in response to a recent letter from the PMO, asking the petroleum ministry to furnish its views on reducing government controls in the pricing of automotive fuels and on creating a level-playing field for all players. International crude oil prices have already tested $82 a barrel levels last week and are expected to further group."If taxation level on petrol and diesel is reduced to reasonable levels, oil companies can pass on the impact of international prices. In case excise duty on petrol and diesel is reduced by Rs 2 per litre, the impact on government revenues is estimated at Rs. 14,000 crore. "The government can recoup this revenue loss by increasing taxes on other commodities. The state governments also need to reduce VAT on these products. It is only then can the prices be put on full float and all players will have a level-playing field," the PPAC wrote to the petroleum ministry. According to the PPAC, competitive prices will not just benefit consumers but would also bring in efficiencies in operations of oil companies and compel them to adopt international benchmarks for their products and services. The PPAC has also suggested introduction of a price stabilization fund for petrol and diesel to handle the situations arising out of excessive volatilities. A stabilization fund smoothens price increases and in effect provides a subsidy during the period of high international prices to be balanced by a levy during period of low international prices. In case of domestic LPG and PDS kerosene, the PPAC' has said the subsidy on these two products should be fully met in a transparent manner from the fiscal budget and needs to be targeted to intended beneficiaries only. "Subsidy for domestic cooking gas needs to be phased out gradually or at least reduced substantially. As recommended by the Rangarajan committee, a one-time upward revision in the price of domestic LPG may be made. After this, its necessary to gradually increase the price of domestic LPG so that retail price adjusts completely to the market level eliminating the subsidy altogether as early as possible", the PPAC said.
New Delhi 26-Sep-2007
The petroleum ministry wants a restructuring of taxes on petroleum products to remove anomalies in pricing. The petroleum planning and analysis cell (PPAC), the ministry's technical wing, has recommended a judicious mix of reduction in excise duties and state taxes, along with initial moderating of consumer prices of fuels. It is of the view that minor revisions in fuel prices are not sufficient to handle the impact of burgeoning global crude oil prices on the domestic prices of petroleum products. Taxes constitute 54% and 32% of retail selling prices of petrol and diesel, respectively in Delhi and needs to be reduced to reasonable levels.PPAC’s comrnents sent on September l5 to the Prime Minister's energy co-ordination committee (ECC), are in response to a recent letter from the PMO, asking the petroleum ministry to furnish its views on reducing government controls in the pricing of automotive fuels and on creating a level-playing field for all players. International crude oil prices have already tested $82 a barrel levels last week and are expected to further group."If taxation level on petrol and diesel is reduced to reasonable levels, oil companies can pass on the impact of international prices. In case excise duty on petrol and diesel is reduced by Rs 2 per litre, the impact on government revenues is estimated at Rs. 14,000 crore. "The government can recoup this revenue loss by increasing taxes on other commodities. The state governments also need to reduce VAT on these products. It is only then can the prices be put on full float and all players will have a level-playing field," the PPAC wrote to the petroleum ministry. According to the PPAC, competitive prices will not just benefit consumers but would also bring in efficiencies in operations of oil companies and compel them to adopt international benchmarks for their products and services. The PPAC has also suggested introduction of a price stabilization fund for petrol and diesel to handle the situations arising out of excessive volatilities. A stabilization fund smoothens price increases and in effect provides a subsidy during the period of high international prices to be balanced by a levy during period of low international prices. In case of domestic LPG and PDS kerosene, the PPAC' has said the subsidy on these two products should be fully met in a transparent manner from the fiscal budget and needs to be targeted to intended beneficiaries only. "Subsidy for domestic cooking gas needs to be phased out gradually or at least reduced substantially. As recommended by the Rangarajan committee, a one-time upward revision in the price of domestic LPG may be made. After this, its necessary to gradually increase the price of domestic LPG so that retail price adjusts completely to the market level eliminating the subsidy altogether as early as possible", the PPAC said.