Government may increase taxes on crude derivatives by Rs 3-5: Sources

The sources informed that petrol, diesel, gas and cylinders will be kept out from the hike.

Government may increase taxes on crude derivatives by Rs 3-5: Sources

New Delhi: At the time, when petrol and diesel prices are at record highs, the government is planning to increase the taxes on crude derivatives. Sources close to the development informed Zee Business that the government is likely to increase the taxes on crude derivatives by Rs 3 to Rs 5 per litre. This hike will be announced within a week.

The sources informed that petrol, diesel, gas and cylinders will be kept out from the hike.

Crude derivatives are a by-product of the crude oil and it comes out when it is refined. There more than 76 by-products of the crude and they include products like monomer, polymer, polyester and wax among others.

The levy on crude derivatives is being increased with an aim to maintain the fiscal deficit target of the year and fill the losses of oil marketing companies (OMCs) due to reduced margins on the sale of petrol and diesel.

Problem that led to the decision?

The oil ministry has asked the finance ministry to fill the losses being incurred by the state-owned OMCs, like Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL), on the sale of petrol and diesel.

Any reduction in the taxes on petrol and diesel will result in a revenue loss to the government. For instance, reduction of a rupee will result in a revenue loss of Rs 13,000 crore. This means the government will not be able to meet its fiscal deficit target of the year like the previous fiscal year, which was increased form decided 3 percent to 3.2 percent.

However, increase in the taxes on crude derivatives will help it to maintain the fiscal deficit and fill the losses of the OMCs.

If seen from today's perspective when petrol is being sold at Rs 75.61 a litre in Delhi, the OMCs are incurring a loss of Rs 4.60. Similarly, in case of diesel, the OMCs are having a loss of Rs 3.60 per litre when it is being sold at Rs 67.08 a litre.

Fruit of the decision

The government wants to adjust the revenue losses of the OCMs by increasing the taxes on these by-products. Undoubtedly, the decision, if implemented, will help the government in reducing the burden on common man, who is facing the heat of increasing prices of the petrol and diesel. But it will increase the burden on companies that import these by-products for manufacturing their products.

The maximum burden of the decision will be felt by paint companies whose 60 percent raw materials are derived from the crude-derivatives. An analysis suggests that Asian Paints quarters profit margin will go down by Rs 100 crore, in the last quarter it saw a profit of Rs 480 crore. Similarly, Berger paint's profit margin may be halved.

(By Saurav Kumar)