NEW DELHI, JANUARY 10:
The Centre is toying with the idea of imposing import duty on crude oil while simultaneously tweaking the cess on domestically produced oil.
The buzz in Finance Ministry circles is that Finance Minister Arun Jaitley may heed a section of his Budget team that is pitching for an import duty. Such a move, if realised, may be accompanied by a tweaking of the cess on domestically produced oil, which would heed a long-standing industry demand. There had been a similar demand ahead of Budget 2015-16, but the Minister had not gone down that route.
An official closely associated with the development said that the possibility of an import duty levy in Budget 2016-17 could not be ruled out. “It (import duty) may not be to the level of 2011-12 (of 5 per cent), but there is room for some duty,” the official added.
While imposition of an import duty will affect domestic refiners such as IOC, BPCL, HPLC, Reliance and Essar, a tweaking of the cess will work to the benefit of ONGC, Oil India and Cairn India.
There is currently no import duty on crude oil; there used to be a 5 per cent import duty in 2011-12, but it was removed following the spike in global crude oil prices. The Centre is likely to take the average crude oil price of about $50 a barrel in the upcoming Budget.
The government is conscious that oil price fundamentals are tricky and challenging, the official said, adding that “the indications coming from the markets are that if not for full fiscal 2016-2017, at least for the first six months, oil prices will remain very soft. This gives the government room to take some risks. But a lot will depend on how “the Indian currency behaves versus the dollar.”
In the April-November 2015 period, India imported 131.535 million tonnes of crude oil valued at 3.12 lakh crore. In the same period last year, it imported 125.417 million tonnes valued at 5.35 lakh crore.
Taking advantage of the prevailing crude oil and product prices, the Centre has been hiking excise duty on petrol and diesel. Since November 2014, it has increased the excise duty seven times.
While the oil industry maintains that it is yet to hear anything about an import duty, there is talk about favourably tweaking the imposition of cess on domestically produced oil. According to the industry, the cess today stands at more than 20 per cent of crude oil price.
The Oil Industry (Development) Act provides for a cess as duty of excise on indigenous crude oil. This is a production cess, which is not a pass-through, and has to be borne by the producer. However, this is not applicable to domestic oil produced from blocks auctioned under the New Exploration Licensing Policy.
During 2005-06, when crude oil prices had increased to $60 a barrel, the cess was 2,500 a tonne; when oil prices hit $100 a barrel in 2012, the cess was increased to 4,500 a tonne. The cess remains at those rates even now.
“It is clear that the government has linked the cess rate to prevailing crude oil prices. Now, it must create a level playing field between the producing areas prior to licensing regime and those under the NELP,” an industry source said, adding that the industry would like to see the cess rate changed to an ad-valorem basis, bringing it to down a single digit and eventually to zero per cent.
