Petro paradox as panel moots excise duty hike

8220;If we are to reduce consumption of oil products, price signals must be transmitted to the consumers so that they can make adjustments on their side as well,8221; says the panel8217;s report to be included by the Working Group on Petroleum 038; Natural Gas in its recommendations for the XIth Five Year Plan 2007-12.

Earlier this month, Deora wrote to Chidambaram asking him to lower the duty on petrol and diesel to reduce the price burden on the common man following June 5 hike of Rs 4 per litre on petrol and Rs 2 per litre on diesel. Deora did not quantify the required duty cut.

On the ad-valorem component of the excise duty, the sub-group felt that it was not excessive even though it added to the increases in global prices. 8220;From the taxation point of view, it is necessary to maintain price as well as quantity buoyancy,8221; it said.

The panel has also countered Rangarajan Committee8217;s suggestion that the disparity in excise duty on petrol Rs 13 per litre 8 per cent and diesel Rs 3.25 per litre 8 per cent be rectified in line with other countries where both products attract more or less equal duty.

Instead, it has recommended that aviation turbine fuel ATF be taxed at the highest level with petrol pegged little lower. 8220;Diesel being lifeline of commerce should attract moderate taxation, but the least of the three transportation fuels,8221; it said.

ATF, which is used solely as aircraft fuel, attracts an excise duty of 8 per cent Rs 2.66 per litre while diesel that consumed by public transport, railways and agriculture fetches Rs 5.20 as duty on every litre. Petrol 8212; used by cars and two-wheelers 8212; begets Rs 15.18 duty per litre.

8220;The current policy seems to favour airline travellers who perhaps can afford higher taxation in contrast to people who travel by buses in public transport or on rail,8221; said the report.

The central message of the sub-group, which is headed by Joint Secretary Pricing Prabh Das, is that India should realign its primary source of energy to match the domestic resources base and rely on fuels other than oil and gas.

8220;Delay in this regard is likely to make out energy problems more acute and prominent with passage of time. Besides, in the longer run, the only viable policy to deal with high international oil prices is to signal the same through domestic retail prices to the consumers.8221;

To that end, the panel has recommended 8220;regular and small adjustments8221; in petrol and diesel prices failing which the government would be forced to correct prices in one go bringing about a price shock.

It has sided with the Rangarajan Committee by reiterating the need to eliminate subsidy on kerosene in one go by restricting it only for those below the poverty level and a gradual phase out of subsidy on LPG though regular price increases.