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Excise duty on petrol to be slashed
June, 04th 2008

After hectic negotiations and deliberations, finance minister P Chidambaram has agreed to cut duties on oil and petroleum products. He had earlier refused to give any duty cuts to bail out oil companies as he did not want to forego hefty revenue in the coming year from this industry. The proposal to share the burden of oil companies has been given a nod by the finance ministry. The customs duty on crude oil will be slashed from present 5 per cent to zero per cent. In addition to this, the customs duty on petrol and diesel shall also be reduced from 7.5 per cent to 2.5 per cent. This cut would mean a loss to exchequer but a relief to the oil companies of approximately Rs 13,300 crore a year.

The excise duty on petrol and diesel will also be slashed by Re 1 per litre each, as was reported in The Tribune earlier. Reducing Central excise by Re 1 will provide a relief of approximately Rs 7,000 crore a year to the oil marketing firms. Excise duty on petrol and diesel at present is fixed at Rs 14.35/litre and 4.6/litre, respectively.

Foregoing these revenues is critical for the finance minister, as in 2007-08 the exchequer earned Rs 1,80,000 crore, an increase of Rs 35,000 crore over last year. India had imported nearly 121.7 million tonnes of crude in 2007-08.

Losing customs duty will also have implications on the exchequer as the duties are likely to contribute higher amount in the current year because as the crude prices go up the revenue also goes up.

As reported earlier, the government intends to increase the price of petrol by Rs 4 per litre and that of diesel by Rs 1-2 per litre.

A Re 1/litre price increase on petrol and diesel would result in an annual saving for OMCs by Rs 1,272 crore and Rs 5,352 crore, respectively. A Rs 10 hike per LPG cylinder would save Rs 756 crore per year.


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