Fin Min rejects proposal to cut tax on petrol

The Finance Ministry has rejected the Oil Ministry's demand of a tax cut of Rs 6 per litre on petrol, a report claimed on Friday.

Updated: Apr 27, 2012, 12:59 PM IST

Zeebiz Bureau

New Delhi: The Finance Ministry has rejected the Oil Ministry's demand of a tax cut of Rs 6 per litre on petrol, a report claimed on Friday.

As per a report published in a leading daily, the Oil Ministry made the request to the Finance Ministry after oil marketing companies demanded the government to either cut taxes or allow them to hike petrol prices by Rs 9.6 per litre.

Earlier state-run oil companies had served an ultimatum to the government that they will raise petrol prices by Rs 9.6 a litre if excise duty is not cut or they are not provided compensation for Rs 49-crore per day loss on fuel sale.

"We have been very patient, not raising prices since December despite our cost of production spiralling. But there is a limit to which we can borrow money and produce fuel for the country," Indian Oil Corp Chairman RS Butola had said.

IOC, together with Hindustan Petroleum and Bharat Petroleum, is losing Rs 49 crore per day on petrol sale alone. They are losing another Rs 573 crore every day on selling diesel, domestic LPG and kerosene below cost.

Butola had said that oil PSUs in the first 15 days of April incurred a loss of Rs 745 crore in revenue on petrol, the pricing of which was freed from the government control in June 2010. But rarely have the product prices moved in tandem with cost as oil companies bowed to government diktats.

"We have suggested that the government should temporarily end deregulation and give subsidy to make up for the difference between cost of production and sale price. Alternatively, the government can cut the Rs 14.78 excise duty it collects when a consumer buys one litre of petrol," he had said.

The states also levy VAT or sales tax ranging from 15 percent to 33 percent (Rs 10.30 a litre to Rs 18.74 per litre), which too can be cut to avoid a price hike.

“If the suggestions are not accepted we would have no option but to increase the price of petrol by Rs 8.04 per litre (excluding state levies) with immediate effect, " he had said. After including 20 percent VAT, the increase in Delhi will come to Rs 9.60 a litre.

Petrol prices were last revised on December 1, when PSU oil firms reduced rates by Rs 0.65 a litre on top of an earlier price reduction of Rs 1.85 per litre effected from November 16, 2011.

For the full 2011-12 fiscal, IOC lost Rs 2,236 crore on selling petrol below cost during different times of the year and the industry (IOC plus BPCL and HPCL) together lost Rs 4,859 crore. These were over and above Rs 138,800 crore the industry lost on selling diesel, domestic LPG and kerosene.

With Agency Inputs