Don't reimpose customs duty on crude: Oil companies

New Delhi: An association of companies like IOC and Reliance Industries has requested the government not to reimpose customs duty on crude oil saying that refineries will not be able to absorb additional costs.

With international oil prices slumping to 12-year low, it is being said that the government may, in the Budget next week, look at re-imposing 5 percent customs duty on crude oil imports to shore up its revenue by around Rs 18,000 crore.

"Oil refining companies are passing through difficult times due to massive inventory losses caused by steep and continuous decline in international crude oil prices and volatile exchange rates," PetroFed has written to Oil Secretary.

"The refining margins have been under pressure for some time and profitability of refineries largely remains uncertain under the current uncertain global oil prices scenario," it said.

The government had cut customs duty on crude oil imports to zero from 5 percent in June 2011 when rates zoomed to over USD 100 per barrel. But with oil prices hovering at USD 30 a barrel now, the duty may be brought back.

PetroFed said customs duty on crude oil is not a pass through in sales price of product as per present pricing formulae and therefore shall lead to an increase in the input cost of the refineries.

"This will further dent the already eroding financials of refineries due to failing oil prices," it said.

India imports about 78 percent of its crude oil needs and remaining 22 percent is supplied by domestic crude oil producers.

"On the domestic crude oil purchases too, refineries have to bear sales tax/VAT, ranging from 2 to 5 percent, which cannot be passed on in the product prices as the VAT set-off credit is not permitted on the same. These levies are already being absorbed by the refining companies," PetroFed said.

The government, it said, has been garnering additional revenues through successive increases in excise duty on petrol and diesel during the last one year.

"Petroleum sector is already contributing to the government exchequer in a big way in this regard and therefore it is urged that it may not be saddled with any additional burdens like cess on domestic crude oil or customs duty on imported crude oil," it added.

Oil companies, the association said, have slated large capex spend in the next few years to meet the growing demand of the economy as also to provide for stringent fuel quality specifications mandated by the government.

"Considering the investment plans of refining companies, the costs that are not pass through in prices (like VAT on crude oil) already being borne by them and the current burden of steep and continuous fall in oil prices, the refining companies shall not be able to absorb any additional costs such as imposition of customs duty on crude oil," it said.