Diesel and LPG prices are unlikely to rise sharply anytime soon, with the Centre reluctant to commit on cutting subsidies on these two items.
Instead, it has appealed to the States to create a mechanism to give relief to the oil marketing companies.
Oil marketing companies are incurring a loss of nearly Rs 14/litre on Diesel, over Rs 31/litre on kerosene and nearly Rs 480/cylinder on LPG by selling them below cost. These companies are suffering a loss of over Rs 600 crore every day on these products.
Replying to the debate on the Finance Bill, the Finance Minister Mr Pranab Mukherjee, said, “Can the States and Centre do something? Can we work out a mechanism?”
Though he did not specify what kind of mechanism, there was a clear indication that he would like States to pitch in by reducing local taxes on these items.
He also stressed the need to address the issue of rising oil prices. He apprehended that crude oil prices may rise more when major economies recover. “The Centre can't fully compensate oil companies' revenue loss,” he added.
According to the Petroleum Ministry, the contribution of Petroleum sector to the Central exchequer through taxes/duties on crude oil and petroleum products, dividend to the Government and income tax was Rs 84,404 crore. States earned Rs 78,427 crore by way of Valued Added Tax (VAT)/sales tax, royalty, octroi, entry tax and dividend income etc.
The Centre levies customs and excise duties while VAT/Sales tax is imposed by the States. The customs duty is levied at the rate of value (ad valorem), but excises duties on petrol and diesel are specific at the rate of Rs 14.78/litre and Rs 2.06 /litre specifically. The Centre does not levy excise duty on kerosene and LPG.
However, the States levy duty at the rate of value (ad valoerum). Whenever there is increase in retail selling prices, the State Governments' VAT/Sales tax collection goes up.
On the other hand whatever the Centre earns from taxes and duties, it has to share it with the States. Mr Mukherjee said that the Centre has to give 32 per cent of its revenue from tax and duties.