For several months there is ongoing discussion regarding raising the petro prices, particularly Diesel and petrol (gasoline) in India as crude prices are in close vicinity of $100/barrel. Government has been holding prices of these products for socio-political reaons stating that petro products are used by vulnerable sections of society. However, recent media reports suggest that there would be modest increase in the prices of Diesel and Petrol very soon after a meeting of GOM scheduled on 4/01/2008 as Public Sector Undertaking (PSU)Oil companies are losing heavily.
Whenever government chose to increase the prices of petroleum products in the past to help out PSU Oil companies, significant quantum of increased prices accrued to Central and State Governments because taxes on these products constitute as high as 55% of the retail price.It is unfortunate that the Govt has chosen to ignore sensible voices (which are feeble, of course, because they do not represent strong vested interests) seeking rationalisation of taxes on Diesel and Petrol, to help bleeding PSU Oil companies as well as the midlle/lower class consumers whom it claims to protect (by not raising the retail prices). Government (central as well as state) have not even agreed to levy a specific levy in place of an ad valorem tax structure followed currently, so that taxes are capped at some level, indicating opportunistic tendency to garner higher taxes even in a crisis situation.
On one hand, Govt claims that it is protecting the vulnerable sections of society by not raising the prices, while on the other hand Governments in India (Central as well as State) are charging exorbitant rate of taxes (excise, special excise and sales tax/VAT), which are well in excess of taxes imposed on items of luxury. It appears that most vulnerable section is government which requires huge taxes on the petroleum products from the vulnerable section to support its own machinery which has failed to collect taxes from private sector ( to whom it grants all kinds of exemptions/concessions on the slightest excuse). It is surprising that some of the state government are charging concessional sales tax from the big consumers (industries), when the prices of the petroleum prices are not commensurate with the crude oil prices. Under such circumstances, giving tax exemption to Industry while charging a higher rate of tax from vulnerable section of society is inconsistent with the public policy. When the full prices are not being charged from customers , then all the tax exemptions granted on petrol and diesel by the State Governements to Industries should be withdrawn immediately, as Industry is already paying a lower price compared to international prices. It is surprising that some of the State Governments are charging taxes commensurate with the slabs applicable to luxury items on Kerosene distributed through the public distribution system(PDS) meant for very poor people (only very few govt are not charging the sales tax on Kerosene).
Becuase of very high sales tax imposed on Diesel and petrol by State govts, these products have been kept out of progressive VAT (value added tax) regime recently implemented in India. State Govt are lobbying for keeping Petrol and Diesel out from the General Goods and Service Tax (GST) which is proposed to be introduced all over in India from year 2010 having one tax rate for one product for entire country. This is ironical considering the claim of government to guard consumer interests.
Through this blog it is requested that Indian government should focus on the tax rationalisation/ reforms to help the PSU Oil Companies urgently. With the buoyancy in the tax receipts it should be possible now. However, if the government choses to ignore the tax reforms in petroleuem sectors now, it will become difficult with the rising in crude oil prices (and also proposed hike in salaries of government servants).
There are several other ways to help out bleeding Oil PSUs which will be covered in my forthcoming blogs.
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