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Govt set to reverse petro duty reductions

With a steep fall in global crude oil prices, the Finance Ministry has decided to reverse the custom and excise duty cuts on petroleum products announced last year. Anupama Airy reports.

business Updated: Jan 23, 2009 22:19 IST
Anupama Airy

With a steep fall in global crude oil prices, from $147 a barrel in June last year to the current levels of $40, the Finance Ministry has decided to reverse the custom and excise duty cuts on petroleum products announced last year. The duties will result in additional revenue generation of around Rs. 5,600 crore in 2008/09, government sources say.

The duty rejig would mean that customs duty on petrol and diesel will again be raised to 7.5 per cent from the existing 2.5 per cent. Similarly, the excise duty cut of Re 1 a litre on petrol and diesel would also be re-introduced.

However, in order to prevent any adverse impact on the airline industry, the government has decided against any increase in the import duty on the jet fuel or the aviation turbine fuel (ATF), a senior Petroleum Ministry official said.

Oil marketing companies are currently making a profit of Rs 11 a litre on petrol and around Rs 4 a litre on diesel. Even after restoring duties, petrol and diesel prices can be lowered by around Rs 9-10 for petrol and Rs 3 for diesel, at the current crude oil price level of around $37 a barrel.

Confirming the move, a senior bureaucrat who did not wish to be identified said, “The issue was discussed at the recent meeting of the Committee of Secretaries on the review of prices of sensitive petroleum products. It was agreed that as the crude oil prices have fallen to as low as $38 a barrel, there is a case for restoring status quo on the duty structure on petroleum products.”

“The duty rejig would bring Rs 3,000 crore from customs and Rs 2,600 crore from excise duties levied on petroleum products,” he said.

A 5 percentage point reduction in customs duties across the board was announced by the government in June, when crude prices had touched $147 levels. This brought rates on crude to zero, on petrol and diesel to 2.5 per cent and on products like ATF and naphtha for non-fertiliser use to 5 per cent.

Excise duty on petrol and diesel were also cut by Re one a litre to Rs 13.45 and Rs 3.60 respectively.