Union government plans to reintroduce import duty on crude oil in the forthcoming union budget in order to increase its tax collection and thereby reduce fiscal deficit.
However, the adverse impact of such a move would be that it would raise the price of oil and could leave the government with a higher subsidy bill if pump prices are not raised commensurately. Government may find it difficult to raise pump prices given that a spate of state elections are round the corner.
Public sector oil marketing companies (OMCs) have expressed reservations to raising the import duty, as they feel that they may be forced to bear a part of the increased subsidy burden especially if they are not allowed to raise product prices.
Petroleum subsidies are currently split three-way between the government, upstream oil companies and oil marketing companies.
At the end of the first half of 2012-13, state-run oil firms had under recoveries — losses incurred on selling fuel below cost – of more than Rs 85,000 crore, almost double the Rs 43,580 crore petroleum subsidy the government had budgeted for the entire year. Oil marketing companies are also pushing for an appropriate duty structure for petroleum products.
In June 2011, central government removed the 5 percent import duty on crude oil and cut the excise duty levied on diesel by Rs 2.6 a litre to cushion pump prices of fuel from a sharp rise in international oil prices.
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