FinMin against petro duty cuts

With the finance ministry facing the risk of missing its tax collection target this year, it has turned down a proposal to reduce duties on petroleum products to reduce the impact of rising crude prices on profitability of oil companies. The ministry would consider reducing duties only if crude prices go up further and diesel is deregulated.

Revenue secretary Sunil Mitra told Business Standard there was no immediate plan to bring down such duties. And, even if the option was considered on account of rising crude prices or deregulation of diesel prices, it would affect tax collections. Another senior official in the ministry ruled out any reduction in duties.

Separately, at the Annual Conference of Chief Commissioners and Directors General of Income Tax, Mitra said, “Given these possibilities, I have serious apprehensions in respect of our tax collection this year.” Whle 2010-11 was a good year for tax collection, it may not happen this year, he warned.

In the Budget for 2010-11, the government restored a five per cent import duty on crude oil, while increasing the duty on petrol and diesel from 2.5 per cent to 7.5 per cent. Excise duty on petrol and diesel was also increased by Rs 1 per litre, taking it to Rs 14.35 and Rs 4.60 a litre, respectively.

There was a proposal to roll back this Re 1 increase in the duty on the reasoning that the government had tried to cut subsidies by deregulating petrol. The counterview of the revenue department was that petroleum products comprise over 50 per cent of the government’s total excise collections and even a rupee’s reduction in excise duty and petrol would result in a loss of Rs 2,000 to Rs 3,000 crore.

“The industry regularly demands reduction in duties so that they are not pressurized to raise prices. Our last Budget recommendation for lowering duties is with the finance ministry,” said an official in the petroleum ministry.