Duty Sops To Refineries May Continue Post-Decontrol

The government is planning to continue giving adequate duty protection to local refineries even after dismantling the administered pricing mechanism (APM). Currently, the government is working out various modalities of duty protection as the gross refining margins (GRMs) are expected to be "adversely affected" in the free market.

During the nine month period (April-December 2001), the GRM of Bharat Petroleum Corporation (BPCL) stood at $2.4 per barrel, Reliance Petroleum at $5.3 per barrel, while refining margins of Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation are understood to be around $2.4 and $2.3 per barrel, respectively.

The government is considering the duty protection option to provide a level playing field to refineries in view of the additional burden they will have to bear due to sales taxes, municipal taxes, turnover taxes on petroleum products, vis-a-vis imported products.

The government is currently debating a 10 per cent duty protection on products from domestic refineries. "On an average, the industry may get a duty protection of upto 10 per cent. However, the percentage may vary depending upon the product slate of the individual refiner," oil analysts claimed.

The domestic refineries have to pay taxes on raw material, unlike imported products. Furthermore, the refiners also have to pay central sales tax, in case the products cannot be stock transferred from the producing state to the consuming state.

Refineries will also have to absorb the cost of various other state levies, which are not applicable on imported products. This pushes up the prices in various states. For example, in Gujarat the state government has levied sales tax of 20 per cent on petroleum products.

Similarly, the Kerala state government levies a 10 per cent turnover tax thereby making throughput costlier from the Kochi Refineries Ltd.

Moreover, following the deferral of value added tax (VAT), the GRMs are expected to be further squeezed.

The government is also considering fiscal incentives and concessions to refineries located in the north-east regions as well as those who are of sub-economic size, to prevent their closure in the open market.