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Cess on taxes among options to bail out oil marketing cos
May, 28th 2008

To bail out the public sector oil marketing companies (OMCs) from the estimated under recoveries of Rs 2,25,000 crore for the current fiscal due to continued surge in global crude prices, the Government is considering a combination of measures including an option of a cess or surcharge on income-tax and corporate tax.

At a meeting between the Finance Minister, Mr P Chidambaram, and the Petroleum Minister, Mr Murli Deora, the proposal of a cess on the lines of the education cess was discussed among other relief options, which include issuance of more oil bonds, rationalisation of duties and an increase in auto fuel prices.

However, the Petroleum Ministry officials said the levy idea may not find many takers within the Government. The proposal was not well received by the Finance Minister, sources said.

If the Government considers a one per cent cess on direct taxes estimated at Rs 3,65,000 crore for 2008-09, then the revenue earned through the cess would be close to Rs 3,650 crore.

A cess of three per cent (the rate of the education cess) would mop up close to Rs 10,950 crore. Oil companies have been suggesting a cess on the lines of education cess, which is levied both on direct and indirect taxes, and this would mop up close to Rs 20,000 crore on the estimated tax revenue of over Rs 6,00,000 crore.
Brooks no delay

Talking to newspersons after his meeting with the Finance Minister, Mr Deora said, we dont want to see scarcity of petroleum products, particularly kerosene and LPG. Oil companies are in a precarious state and we need to find solutions urgently.

The three OMCs Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation are losing Rs 580 crore daily in selling petrol, diesel, LPG and kerosene below the market price.

Later in the day, Mr Deora also met the Prime Minister, Dr Manmohan Singh, and the External Affairs Minister, Mr Pranab Mukherjee.
Suggested price hikes

The Petroleum Ministry is understood to have proposed a hike in petrol price by Rs 10 a litre, diesel by Rs 5/litre and that of LPG by Rs 50/cylinder to bring down the revenue losses suffered by the OMCs.

The proposal to impose a cess follows the Finance Ministrys reluctance to cut duties on crude oil and petroleum products as it would have to forgo revenues.

Mr S Sundereshan, Additional Secretary in Petroleum Ministry, said oil companies cannot wait for another week for the decision. We are hopeful that a decision will be taken soon.

The Petroleum Ministry has been seeking cut in customs duty on crude oil to zero from five per cent and that on petrol and diesel to 2.5 per cent from the current 7.5 per cent.

It is also seeking a cut in excise duty on petrol and diesel by half.

The excise duty on petrol at present is Rs 14.35 a litre and diesel Rs 4.60 a litre. Currently, the revenue loss on petrol is Rs 16.34 a litre and diesel Rs 23.49 a litre.

The Petroleum Ministry sources said while HPCL and BPCL have cash to import crude oil only till July, IOC can buy till September.

The upstream contribution for the fiscal can be limited only to Rs 30,000 crore and marketing companies have a capacity to absorb oil bonds worth Rs 35,000 crore.

Another Rs 15,000 crore can be absorbed by refining-cum-marketing companies. If the customs duty is made nil and excise duty reduced by half, there would still be a gap of Rs 51,000 crore that would need to be met through other measures, sources said.

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