Had it cut excise duty on petrol, price hike could have been avoided
Though the common man has been burdened with yet another petrol price hike — the fourth consecutive exercise this year — the Finance Ministry has played spoilsport in any attempt to provide relief to the aam aadmi, refusing to slash customs and excise levies on the fuel.
Officials in the Petroleum Ministry said it had represented to the Finance Ministry time and again the need for juggling the excise and customs levies but the effort has come a cropper. The Finance Ministry had been acting very “stubborn” and repeated meetings between Petroleum and Finance Ministers S. Jaipal Reddy and Pranab Mukherjee failed to resolve the issue.
According to the Petroleum Planning and Analysis Cell (PPAC), working under the Ministry, the government of India levies Rs. 14.35 paise a litre on petrol — a basic customs duty of Rs. 6.35, a special additional excise duty of Rs. 6 and an additional excise of Rs. 2. “Had the Finance Ministry agreed to cut even Rs. 5 per litre in the shape of excise, it would not only have given relief to the common man but also prevented the latest hike. But the Finance Ministry has refused to budge, leaving the loss-making oil marketing companies (OMCs) with no option but to hike the prices in line with the rising crude prices at the international level.”
On the other hand, diesel attracts only a levy of Rs. 2 a litre in the form of an additional customs duty. The latest PPAC report suggests that petrol sales growth dropped below that of diesel in April-August 2011 after a gap of six years. The negative growth in the sale of passenger vehicles and the high retail price of petrol have taken their toll on petrol sales — a growth of only 4.5 per cent during August 2011.
Rupee depreciation
The average price of the Indian basket of crude, which was $85.09 a barrel in 2010-11, has now increased by 30% and the average price in the current financial year is around $110. To make matters worse, the rupee has depreciated from Rs.45/$ to over Rs.49/$ in the recent months. The under-recoveries of the OMCs increase by about Rs. 8,000 crore annually on account of depreciation of every Re.1.
The officials said that despite the recent hikes in the prices of the three sensitive petroleum products and reduction in customs and excise duties, the OMCs were incurring an under-recovery of Rs.8.58 a litre on diesel, Rs. 25.66 on kerosene and Rs. 260.50 a cylinder on domestic LPG. The total under-recovery of the PSUs on sale of the three products for the year is expected to be around Rs.1,32,000 crore compared to Rs.78,190 crore last year.
Their under-recovery for the first half of 2011-12 stood at Rs. 64,900 crore. Despite a cash support of Rs.15,000 crore from the government and a contribution of Rs. 21,633 crore by upstream oil companies, the OMCs have declared huge losses for the first half of 2011-12. The combined losses of BPCL and HPCL for the first half are more than Rs.12,000 crore. IOC is also likely to be in the red, if no further cash assistance is announced.
The crisis faced by the OMCs is evident from the unprecedented borrowings of Rs. 1,29,989 crore for working capital and dollar requirements for payment for crude import, the officials said.
Keywords: Petrol price hike, fuel price hike, UPA-II, Finance Minister, inflationary pressures, excise levies
Government is playing a big joke on aam aadmi through petroleum pricing. Central and state governments are the biggest beneficiaries of crude oil and petroleum price hikes for the simple reason that most taxes/duties are ad valorem (based on value) rather than specific. central and state government make more money as the prices keep going up. Can anybody tell me why the government should collect more taxes just because international crude prices have gone up. Can't the government atleast keep taxes at the same level (in absolute terms) if not actually reduce them.
Diesel car owners should be required to pay a flat yearly "subsidy" tax that goes towards subsidizing diesel. For starters, the govt should fix a reasonable yearly amount irrespective of vehicle usage. Does not make sense to keep increasing petrol prices to subsidize diesel costs.
Simply I am finding myself unable to drive my car. I drive it out occassionally only for joy rides and thats all. When I started to drive some years back I used to get 5-litres of petrol for a hundred bucks. Now it is a nightmare to own and manage a four wheeler. Rest is history................!!!!!!!
Time has come to increase prices of diesel, cooking gas and kerosene. Would it not be possible to give cash stamps to urban and rural under class that can be used in other purchases to compensate them in cost of living. This way rich will not take shelter behind poor and underclass in respect of Diesel, cooking gas and kerosene. Petrol alone will not have bear the brunt of the crude price rise.
As to the excise and custom duties time has to come to look at the expenditure side of budget. The high degree of waste and siphoning of (corruption)in government expenditure is the cause of high level of fiscal levies. It is unfortunate that the most influential and powerful finance minister is pulling his weight only in protecting revenue and not also in cutting out waste in expenditure.
Isn't the whole idea of subsidizing Diesel to reduce the cost of transportation and hence the cost of goods to the common man. Then, why is the author surprised that Diesel attracts lower taxes and duties. Also, how does the price of Petrol affect the aam admi other than what they use for personal conveyance which they have to bear the cost.
The word common man seems to be the most abused term in the political vocabulary. 60% of the people are too poor to own a petrol driven vehicle. How is cutting excise duty each time international prices rise or the rupee depreciates constitute a sensible policy? Can the FM take a decision in isolation? What will be the impact of a cut in excise on the fiscal deficit? What will that do to inflation and the value of the rupee? Should owners of petrol vehicles get a subsidy at the cost of the poor who can't afford one? Why does no one talk about the high level of state tax or improvement in the public transport system, both of which are the responsibility of the state governments. The subsidy given to diesel cars and SUVs is so very unethical. If people want a subsidy for petrol, fertilizers etc.,then it must be funded, either through higher income (we need a 40% and 50% slab), corporate, and capital gains taxes.
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