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

The government is likely to restore Customs duty on crude oil 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 oil prices, as crude oil prices have been weakening and there is hope these will soften further. The finance ministry is considering re-imposing the duty on crude oil at a rate of three per cent, sources say.

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 oil 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 oil that Budget 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 petrol and diesel since November
• Rs 21,000 cr The government’s estimated mop-up through these hikes
• 5% The Customs duty 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 Customs duty. Its collections on account of the re-imposition of the duty on crude oil will be about seven per cent of its annual Customs mop-up.

Finance Minister Arun Jaitley 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 Budget projection for 2014-15 is 4.1 per cent).

A five per cent Customs duty on crude oil had been removed in June 2011, when prices had soared to about $120 a barrel. “Weakening in crude oil 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 petrol and diesel were cut by Rs 2.42 and Rs 2.25 a litre, respectively, in line with the decline in international oil prices. This was the 10th price reduction for petrol since August and the sixth for diesel since October. Following the latest price cuts, petrol prices are at their lowest since September 2010, while diesel is the cheapest since March 2013.

Since November 2013, the government has also implemented excise duty increases on petrol and diesel four times — totalling Rs 7.75 a litre on petrol and Rs 7.5 a litre on diesel. 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 oil prices, bringing back the Customs duty on crude oil will be a possibility the Centre might consider,” said Pratik Jain, partner (indirect tax), KPMG.