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Jaitley's Budget 2015 may restore Customs duty on crude oil

Move could fetch the exchequer Rs 14,000 cr, help the govt bridge FY16 fiscal deficit

Jayshree P Upadhyay  |  New Delhi 

The government is likely to restore on crude in the coming Budget, a move that might fetch the exchequer around Rs 14,000 crore next financial year and help the government meet its target of reining in the fiscal deficit at 3.6 per cent of gross domestic product (GDP) in 2015-16.

According to sources, the government could re-impose the duty, scrapped in 2011 amid high global prices, as crude prices have been weakening and there is hope these will soften further. The finance ministry is considering re-imposing the duty on crude at a rate of three per cent, sources say.
Read our full coverage on Union Budget In 2013-14, India imported 3.86 million barrels a day of crude oil, according to Reuters data. If consumption in 2014-15 remains at the same level, imports will stand at 1,409 million barrels. At $53.83/barrel for the Indian crude basket, the country’s total import bill will stand at about $76 billion. Three per cent of that (the likely Customs duty) comes to $2.3 billion, or Rs 14,186 crore at 61.68/dollar.

CASE FOR A DUTY RISE
  • 3% The likely duty on crude that 2015-16 might announce
  • Rs 14,000 cr The estimated mop-up by the government; this is 7% of the annual Customs collection
  • 4 The number of times the government has raised excise duties on and since November
  • Rs 21,000 cr The government’s estimated mop-up through these hikes
  • 5% The in 2011, which was removed due to escalating crude prices

On an average, the government is estimated to collect a total of Rs 2 lakh crore a year as Its collections on account of the re-imposition of the duty on crude will be about seven per cent of its annual Customs mop-up.

Finance Minister has already committed to a fiscal road map laid down by his predecessor, P Chidambaram. Adhering to that, the Centre’s fiscal deficit will have to be brought down to 3.6 per cent of GDP in 2015-16 from 4.2 per cent this financial year (the projection for 2014-15 is 4.1 per cent).

A five per cent on crude had been removed in June 2011, when prices had soared to about $120 a barrel. “Weakening in crude prices makes a good case for the re-imposition of Customs duty; it will not burden consumers,” said a source.

On Tuesday evening, the prices of and were cut by Rs 2.42 and Rs 2.25 a litre, respectively, in line with the decline in international prices. This was the 10th price reduction for since August and the sixth for since October. Following the latest price cuts, prices are at their lowest since September 2010, while is the cheapest since March 2013.

Since November 2013, the government has also implemented excise duty increases on and four times — totalling Rs 7.75 a litre on and Rs 7.5 a litre on This is likely to fetch it an additional Rs 21,000 crore, of which a third will go to states.

“The government is pressed for revenues and there is not much room for it to increase taxes. The Centre is keen to find alternative avenues for revenue generation. With a decrease in global crude prices, bringing back the on crude will be a possibility the Centre might consider,” said Pratik Jain, partner (indirect tax), KPMG.

First Published: Thu, February 05 2015. 00:59 IST
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