Government may increase taxes on crude derivatives by Rs 3-5: Sources

At a time when petrol and diesel prices are at record highs, and global oil prices have breached the $80 mark, the government is planning to increase the taxes on crude derivatives, sources close to the development informed Zee Business. It was also revealed that the government is likely to increase taxes on crude derivatives between Rs 3 to Rs 5 per litre. This hike will be announced within the week. 

In what will come as a big relief to consumers, the sources informed that petrol, diesel, gas and cylinders will be kept out of the ambit of the hikes. 

Crude derivatives are a by-product of crude oil that are released when it is refined. There are more than 76 by-products of crude and they include products like monomer, polymer, polyester and wax among others. 

The levy on crude derivatives is being increased with an aim to maintain the fiscal deficit target of the year and make up the losses of oil marketing companies (OMCs) due to reduced margins on the sale of petrol and diesel. 

Problems that are leading to the decision 
The oil ministry has asked the finance ministry to make up losses being incurred by the state-owned OMCs, like Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL), on the sale of petrol and diesel. 

Any reduction in the taxes on petrol and diesel will result in a revenue loss to the government. For instance, reduction of a rupee will result in a revenue loss of Rs 13,000 crore. This means the government will not be able to meet its fiscal deficit target of the year like the previous fiscal year, which was increased from the previously decided target of 3 per cent to 3.2 per cent. 

However, increase in the taxes on crude derivatives will help it to maintain the fiscal deficit and make up the losses of the OMCs too. 

If seen from today's perspective when petrol is being sold at Rs 75.61 a litre in Delhi, the OMCs are incurring a loss of Rs 4.60. Similarly, in case of diesel, the OMCs are taking a loss of Rs 3.60 per litre when it is being sold at Rs 67.08 a litre. 

Impact of the decision
The government wants to adjust the revenue losses of the OCMs by increasing the taxes on these by-products. Undoubtedly, the decision, if implemented, will help the government in reducing the burden on common man, who is facing the heat of increasing prices of petrol and diesel. But it will increase the burden on companies that import these by-products for manufacturing their products. 

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The maximum burden of the decision will be felt by paint companies as almost 60 percent of their raw materials are derived from crude derivatives. An analysis suggests that Asian Paints quarterly profit margin may even go south by Rs 100 crore - in the last quarter it saw a profit of Rs 480 crore. Similarly, Berger Paint's profit margin may get halved.