Budget 2008 may bring cheer to oil companies. The government is considering conferring declared goods status on ethanol. The tag will pave way for imposition of a uniform levy of 4% at the state level. At present, states levy differential sales tax or value-added tax on ethanol, with the rate being as high as 20%.

To give a boost to the green fuel, the Centre is also expected to bring down the excise duty on ethanol from the current 16%.

The duty rationalisation, besides encouraging production and use of ethanol, is expected to bring domestically-procured ethanol on par with imported ethanol. At present, domestic ethanol costs Rs 28 a litre whereas imported ethanol comes at Rs 21 a litre.

The proposal to give declared goods tag to ethanol was mooted by the oil ministry and has received Planning Commissions support, said officials requesting anonymity. While the issue has been sent to a group of ministers for examination, the general view is in favour of including it in the list. The government had brought LPG in the
declared goods list in Budget 2007.

At present, along with a 16% central excise duty, sales tax on ethanol varies from 4% to 20% in the states.
Besides, states levy surcharges, export fees (from one state to another state), import fees, permit fees, licence fees, administration fees and state excise.

For example, Punjab levies a 20% sales tax (plus 2% surcharge on sale tax) and Re 1 per litre import permit fee on ethanol. In Maharashtra, sales tax is 4% while it is 19% in Goa and 8% in Tamil Nadu (plus 5% surcharge on sales tax).

In October 2007, the government had made blending of 5% ethanol mandatory across the country barring Jammu & Kashmir and north-eastern states. From next year, 10% ethanol blending will be compulsory.