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Cong favours a moderate hike, Left says tax cos
May, 31st 2008

There appears to be little elbow room for bold solutions to tackle the effects of rising crude oil prices. The government leadership, which pushed the proposal for IT cess off the table on Wednesday afternoon, seems to be veering round the view that the crisis will have to be handled with a combination of a moderate hike and duty cuts.

While the Congress is in agreement with the economy managers contention that oil companies should not be left to bleed and fiscal deficit should not be widened beyond repair, it is against anything that would stoke public anger. It is a serious issue as crude has touched $129 a barrel. But the government bears in mind the sufferings of the common man, said Congress spokesperson Jayanti Natarajan.

Ms Natarajans statement explains the Congress as well as the governments dilemma. While a failure to act on the problem will lead to a reworking of the India story, a hike in the prices will bring it the disfavour of people.
The Left, which appears determined to exploit the governments lame duck status, on Monday repeated its demand for taxing private oil companies. Alleging that the government was pursuing a selective policy, the CPM sought imposition of a windfall profits tax on private and JV oil companies as well as private refineries.

In a statement, the CPM polit bureau said it was time to recover unintended gains from upstream contractors. When these companies participated in the NELP, none of them could have envisaged crude oil prices beyond $30 per barrel. It would be failure on the government part to allow upstream contractors additional gain of $70 to $80 per barrel without any extra work, the CPM said, It also reminded the Centre that several countries have renegotiated contracts with the threat of imposing windfall tax.

That the government would face stiff opposition to a major hike was evident from the tone of the CPM statement. In no case can the UPA government pamper the private oil companies to make windfall profits and, at the same time, increase the price of petrol and diesel and burden the people further when they are suffering from steep price rise of essential commodities, the CPM polit bureau said.

The Left has been asking the government to reduce customs and excise duties. According to it, this cut and removal of ad valorem should help the government overcome the crisis. Reduction of customs duty on crude oil from 5% to nil would give a relief of Rs 15,000 crore this year.

The CPM also sought the creation of a price stabilisation fund by using money collected through cess on crude oil produced by ONGC and Oil India the two oil producing PSUs. This, it said, would amount to Rs 7,500 crore per annum.

The government should impose a windfall profits tax on private/joint venture oil producing companies and private stand alone refineries earning huge profits through import parity policy of pricing, the statement said. The party recalled that in the US in 1980, a federal legislation was passed that levied such a tax on oil companies because of the profits earned as a result of sharp increase in oil prices brought about by the Arab oil embargo. Earlier this month, a Democratic senator introduced a bill which would create tax on windfall profits on the major oil companies.

Pointing out that private sector refineries have been allowed to keep margins for refining cost exceeding $ 15 per barrel, the CPM statement said that public sector companies struggle to meet their financial requirements. By design the government has dragged down the public sector companies while private sector companies have been allowed to flourish, it said.

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