IOC against import duty on crude oil

India imported 189 mt of crude oil in 2014-15, valued at $112 billion. In the current financial year, the value of imports is expected to come down to $61 billion

Ahead of the Union Budget to be tabled in Parliament on February 29, Indian Oil Corporation (IOC), the nation's largest fuel retailer, has urged the government not to consider reimposing a five per cent customs duty on crude oil imports arguing the levy would jack up costs.

"Considering the investment plans of the refining companies and the current burden of steep and continuous fall in the prices of finished petroleum products, the refining companies are not in a position to absorb the additional cost of imposition of customs duty on crude oil, if any, since it is not a pass-through levy in the ultimate sales prices of products," IOC Chairman B Ashok told Business Standard.

The Centre had cut Customs duty on crude oil imports from five per cent to zero in June 2011 when global crude oil prices had shot up to around $100 a barrel. However, the government might now look at introducing the duty again in the Union Budget 2016-17 with the oil prices having crashed below $30 a barrel - a 12-year-low.

India imported 189 million tonnes (mt) of crude oil in 2014-15 valued at $112 billion. In the current financial year, the value of imports is likely to come down to $61 billion even as volumes are expected to remain flat at 188 mt, thanks to the slump in crude rates.

The government maintains a 2.5 per cent import duty differential between crude oil and petroleum products, petrol and diesel, to protect the domestic industry. Currently, while crude oil attracts nil import duty, the levy on petrol and diesel stands at 2.5 per cent.

A five per cent import duty likely to be imposed on crude in this year's Budget could, therefore, be accompanied by an increase in petrol and diesel import duty to 7.5 per cent.

The Centre might look at tweaking the current Rs 4,500 a tonne cess on crude production by making it ad valorem to align with global oil prices or cut it down to a low fixed per tonne levy.

The move, if implemented, would benefit producers of oil from pre-NELP (New Exploration Licensing Policy) blocks - Oil and Natural Gas Corporation and Oil India apart from the Rajasthan field of Cairn India - but offset the government's gains from a possible import duty hike on crude oil.

The Oil Industry (Development) Act provides for a cess as duty of excise on indigenous crude oil.

This is a production cess, which is not a pass-through and has to be borne by the producer. However, this is not applicable to domestic oil produced from blocks auctioned under NELP.

The cess was increased to Rs 4,500 a tonne from Rs 2,500 a tonne in 2012 when the crude oil prices rose to $100 a barrel and remain at that level even now.