Crude oil likely to get duty recall

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 THE government may reimpose the duty on crude oil imports, its biggest source of Customs revenue before the levy was scrapped last year, as it looks for fresh revenue streams to rein in mounting fiscal deficit.
    The finance ministry has initiated discussions with the oil ministry on this proposal, and a final decision will be taken by the finance minister in consultation with the prime minister, a government official in one of the ministries said. The government had removed the duty last June to cushion domestic customers from the impact of global crude oil prices, which hit a record high of $147 per barrel.
    With global prices falling by over 52% since, the government is now exploring the option of reinstating the Customs duty. India imports more than 70% of its crude oil requirements and an import duty of even 5% will bring in more than Rs 10,000 crore if global prices remain at or around $70 per barrel.
    Global prices hovered round $71 on Wednesday, up from the low of $38 it touched in December 2008. In 2007-08, Customs collections from crude oil totalled about Rs 12,000 crore when the average price of crude was about $79 a barrel.
    However, a duty comeback may spell bad news for refiners like state-run IOC, BPCL and HPCL and India's largest private sector company by value Reliance Industries unless the government also raises import duties to a similar extent on refined products such as petrol and diesel.
    Refiners can claim export parity price, which allows them to add notional duties to the prices of refined products without actually paying any tax. Also, the government is unlikely to let oil marketing firms pass on the burden to retail consumers. The official said the government is likely to direct stateowned oil firms that control more than 80% of the retail market to keep pump-level prices unchanged to make the proposal politically acceptable.
    Though the Centre can change the duty structure any time through a notification, it wants to look at the whole tax regime in line with the demands on resources emerging in the Budget. With the ballooning fiscal deficit—pegged at 5.5% of the GDP in 2009-10 in the interim budget—remaining a huge concern for the finance ministry, it is looking at all possibilities to garner resources required to fund the government's committed social sector expenditure.
    Changes in the duty structure for oil had figured in the pre-Budget talks between the oil and finance ministries. Indeed, the government in June 2008 carried out a major revamp of indirect taxes on crude oil and petroleum products when crude prices soared to $147 a barrel. It had brought Customs duty on oil from 5% to nil, reduced Customs duty on petrol and diesel from 7.5% to 2.5%, excise duty by Rs 1, leading to a total revenue loss of Rs 22,660 crore.

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