People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 15

April 11, 2010



Petroleum Taxes: The Untold Story

                                  Dipankar Mukherjee

�We have been criticised. Why have you enhanced the excise duty? Why have you enhanced customs duty on petroleum crude? Most respectfully I would like to submit that I have not introduced a single new tax. All these taxes were in vogue in 2008-09. What has happened that when the crude price reached as high as 112 dollars per barrel, the five per cent customs duty on petroleum crude was withdrawn.  The one rupee excise duty per litre of petrol and diesel was withdrawn. I did not tamper with that for the full year 2009-10.  But when I find that price has come down today around 73 or 74 or 75 dollars per barrel perhaps, this is the time when we can absorb it� said Pranab Mukherjee in Rajya Sabha while replying to the budget discussions.



Yes, he is correct that all these duties were in vogue not only in 2008-09 but also much earlier. But he did not say that these duties and taxes were more or less stable and dependent only on trade volumes independent of fluctuations in international crude oil price. It was only after 1991 when Dr Manmohan Singh became finance minister  that  the duty structure was changed and has been rising in tandem with rise in crude prices as they were made ad valorem i.e., duties were linked with crude price instead of being specific in Rs./litre.  What has been the result?  Central excise duty on petrol was Rs 5.32/litre and on diesel Rs 2.55/litre in 2000-01 when the crude price was 23 dollars per barrel. Today the excise duty on petrol and diesel is Rs 14.75 and Rs 4.75 per litre.  If the crude price has increased 3 times to 70 dollars per barrel during the last decade, the central duties have also not lagged behind.  Still the finance minister of �Aam Aadmi ka Sarkar� coolly says �we can absorb it�.  So �Aam Aadmi� has to absorb both the international price rise as well as the tax hike together. Pranab babu says government is benevolent as it has not introduced any new tax.  Is it necessary when the tax is increased by 200 to 300 times during a decade? 



Further look at the cess charged by government on crude oil produced by ONGC and OIL (only public sector oil producers, not the private ones) which was Rs 900/tonne in 2000-01.  The NDA government in 2002 doubled it to Rs 1800/tonne and the �Aam Aadmi Sarkar� in 2006 increased it to Rs 2500/tonne.  Only on this account, the government collected Rs 81,106 crore since 1974. How much they have given to Oil Industry Development Board, which was supposed to invest this money in oil sector PSUs?  Only Rs 902.04 crore.  The Parliamentary Standing Committee on Petroleum and Natural Gas in its report laid in parliament on May 22, 2006  stated:

��The Committee, in their original Report, had emphasised that there was no justification in levying cess on indigenous crude oil if the amount generated from it was not being utilised for the oil sector and had recommended that a Price Stabilisation Fund should be created by using the money collected from cess to bring in stabilisation in the prices of petroleum products.  They had also desired that a part of the cess amount should be utilised to provide subsidy on kerosene and LPG.   The Ministry of Petroleum and Natural Gas has agreed that there is a case for establishing a 'Price Stabilisation Fund' with funding from the cess on indigenous crude as the oil prices have been extremely volatile in the recent past and the oil companies have not been able to pass on the full burden to the consumers resulting into under recoveries.  The Planning Commission has also supported the proposal �in principle� for utilisation of cess for the purpose of oil industry/operating the Price Stabilisation Fund.  However, the Committee are unhappy to know that the Ministry of Finance has not agreed to the proposal for setting up the Price Stabilisation Fund.  They strongly disapprove of the negative approach of the Ministry of Finance to such a vital issue.�

The approach remains still negative. Price Stabilisation Fund has not been created. The cess collected is not being utilized for the oil sector. After all who bothers about a Parliamentary Committee even if it was chaired by a Congressman like N Janardhana Reddy and included Congress heavyweights like Ahmed Patel, Rajeev Shukla etc.  For �Aam Aadmi Sarkar� expert committees of Rangarajan and Kirit Parikh are more sacrosanct than the Standing Committee constituted by the parliament.  Incidentally Rangarajan Committee recommended a cess of Rs 4800/tonne!




Pranab babu in the course of his reply further said �I do know that when prices go up, common people suffer, poor people suffer. It is not an unknown fact�  What is unknown is that while the excise duty on petrol and diesel is Rs 14.78 and Rs 4.75 per litre respectively, the same on Aviation Turbine Fuel (ATF) used in Aircrafts is Rs 3.60/litre.  Obviously the suffering of air travellers is more in the eyes of the government than those who travel in buses, two wheelers or the farmers who use diesel.

Pranab babu justifies the customs duty hike saying �you cannot ignore the fact that when you are to import certain commodities at high prices, it will have to get reflected somewhere.�  But where?  On the common man or on those who are importing huge quantity of crude for refining and exporting the refined product at huge profit after getting �duty drawback incentives� In 2008-09 petroleum product worth Rs 85,000 crore was exported by private refineries.  Why the reflection did not come in terms of cut in incentive on these �billionaires� Aam Admi instead of Rs 1.20/litre reimposition of custom duty on crude for the �suffering� Aam Admi ? What did the Parliamentary Committee headed by N Janardhan Reddy say in the above report laid in parliament ?

�The Committee in their original Report, had recommended that the government should withdraw the duty drawback incentive to exporting companies for export of petroleum products.  In its Action Taken Reply, the government has, inter-alia, stated that under the EXIM policy, the duty drawback benefit in the form of advance licensing enables duty free import of inputs required for export production to encourage exports that earn valuable foreign exchange for the country.  The committee had recommended that the customs duty waiver given to the exporting companies on part of their crude imports should be discontinued and the revenue gained by the government in the process should be passed on to  the consumer by way of reduction in excise duties on petroleum products.  As huge international prices alone can take care of the profits of the exporters, the Committee reiterate their earlier recommendation that the government should withdraw the duty drawback incentive for export of petroleum products�

What is the response of Pranab babu or the UPA-II government?  Obviously, the incentive to the oil billionaires should continue and the so called subsidy to the �Aam Admi� should be reduced and the reiterated recommendation of the Parliamentary Committee should be contemptuously ignored.




There is a planned campaign by the succeeding governments, the petroleum corporates and their captive media � that the government is subsidising heavily the kerosene, diesel, petrol and LPG users, leading to resource crunch in public sector Oil Marketing Companies (OMCs).  How far is this true?  Let the figures speak.  During the year 2009-10 as per provisional figure available for the period April to December, 2009, the contribution to central government exchequer by petroleum sector is Rs 56,365 crore. The subsidy provided by the government, including the oil bonds issued to OMCs during the same period, is Rs 14,058 crore i.e., 25 per cent of petroleum sector�s contribution in taxes and duties. Therefore the �Aam Admi� pays 100 rupees as taxes/duties and get 25 rupees as so called subsidy!  Who is subsidizing whom?  The cruelest joke is that during the worst period of inflation, the Government is reducing this ratio below 20 per cent in 2010-11 by extracting additional revenue of Rs 30,000 crore through hike in import duty on crude and excise duty on petrol and diesel. As a matter of fact, the contribution of petroleum sector to central revenues rose from Rs 46,603 crore in 2001 to Rs 93,513 cr in 2008-09.  Still, the government, in Pranab babu�s words, wants the people to absorb more taxes as this is the appropriate time when prices are skyrocketing in real terms!



It is in the light of the above, that Parliamentary Standing Committee on Petroleum and Natural Gas, which it must be noted comprised members of parliament from all parties including Congress,  had observed:

 �..The Committee find that the governments have a tendency to bank heavily on this sector to mobilise revenues.  They, therefore, reiterate their earlier recommendation made in their Fifth Report (14th Lok Sabha) that the practice of squeezing the maximum out of the sector without concern for the common man needs to be changed.  The committee once again urge the government to exercise restraint and apply the policy of prudence in making earnings from the oil sector.�

The response of the government vide its letter dated 19-01-2006 was :

��The Committee has rightly pointed out the over dependence on petroleum sector generating government revenue reveals a disturbing trend, especially when viewed against the following facts:

a) Abnormal increase in prices of crude oil and petroleum products in international market.

b) Loss incurred by oil marketing companies during the period April-June, 2005;

c) Need for substantial investment requirement in upstream and downstream oil companies.

The recommendations of the committee have been taken up with the ministry of finance and state governments.

The above assurance by the government which had been tabled in the parliament is being reversed by the government of the day through increase in existing duties for enhancing government revenue in spite of increase in prices of crude oil and petroleum products in international market vis-a-vis the prices in 2006.  Parliament must assert its supremacy over the executive and the so-called expert committees, appointed by the executive.  It should force the government to see reason and to withdraw the tax/duty hike as well as implement the Parliamentary Committee�s recommendations. The recommendations were unanimous. Parliamentary pressure for withdrawal of additional taxes imposed by the government should also transcend beyond party barriers.