Finmin seeks formula for 'revenue-neutral' halving of subsidies
The petroleum ministry has proposed to impose a surcharge on direct taxes to offset the staggering losses oil companies run up from selling petroleum products at prices lower than their cost.
The under-recoveries of oil companies on selling petrol, diesel, kerosene and liquefied petroleum gas are estimated to reach as high as Rs2,35,000 crore in the current fiscal year that ends in March 2009, a person familiar with the matter said.
Global crude prices have surged to as high as about $135 per barrel at present from about $50 per barrel a year back.
The domestic oil companies, however, are forced to sell petroleum products below their purchase price as the government has capped the retail prices in order to control inflation.
The petroleum ministry has
not specified the amount of surcharge requested to be levied on income tax, corporate tax, and other direct taxes.
Currently, a 3% education cess is levied on the payable income tax by the individuals and the corporations.
A 3% surcharge was also levied on the taxable income in 1999-2000 to meet the expenses incurred during the Kargil conflict, and a 2% surcharge was levied in the year 2001-02 for Gujarat earthquake relief.
The petroleum ministry had earlier proposed to fund the under-recoveries for the current fiscal year through burden sharing by the oil companies, the government and the oil marketing companies.
"The upstream petroleum (oil production) companies can bear one-third of total under-recoveries, at about Rs80,000 crore, as they make windfall gains due to rising international crude prices, while their production cost remains same," said a government official requesting anonymity.
"Now with the crude prices touching $135 per barrel, the upstream companies may be asked to share even more as the increased prices directly go into their profits," said the official.
The petroleum ministry had also proposed to do away with all the duties on petrol and diesel to arrest Rs55,000 crore of under-recoveries and thus minimise the need for a price rise.
The finance ministry has, however, told the petroleum ministry to work out a formula with 50% reduction in duties, which will be revenue-neutral for the Centre.
The government plans to issue bonds worth Rs100,000 crore to meet the remaining under-recoveries in the current fiscal year.
The oil-marketing companies may be asked to share bonds worth about Rs50,000 crore if the government goes by the previous year's burden sharing, where the oil marketing companies like Indian Oil Corporation were asked to share Rs17,000 crore of bonds, out of total under-recoveries of Rs77,000 crore, the official said.
"Raising prices of petrol and diesel is obviously the last resort on the government's mind considering elections are due next year," the official added.
Petrol and diesel prices need to be hiked by as much as Rs15-20 per litre if the prices are completely deregulated.
"The upstream petroleum (oil production) companies can bear one-third of total under-recoveries, at about Rs80,000 crore, as they make windfall gains due to rising international crude prices, while their production cost remains the same," said a government official requesting anonymity.