Govt may re-impose customs duty on crude oil imports

With international oil prices slumping to 12-year low, the government may look at reimposing 5% customs duty on crude oil imports to shore up revenue by close to Rs 18,000 crore.

The government had cut customs duty on crude oil imports to zero from 5% in June 2011 when rates zoomed to over $100 per barrel. But with oil prices hovering at $30 a barrel now, the duty may be back, official sources said.

As the government looks to shore up its revenue without hurting economic growth, reimposing import duty on crude oil presents a viable alternative the Budget 2016-17 to be presented on February 29, the sources said.

Alongside, customs duty on petroleum products, petrol and diesel may also be increased in equal proportion to duty levied on domestic refiners.

Petrol and diesel currently attract 2.5% import duty. This duty differential is maintained so as to protect domestic industry by making import of product costlier as compared to domestic manufacturing.

If import duty on crude oil is raised in the budget for 2016-17, it would go up on allied products too from 2.5% to 7.5%, sources said.

At $30 per barrel crude oil price, 5% customs duty will fetch the government close to Rs 18,000 crore at current levels of imports.

India imported 189.4 million tons of crude oil in 2014-15 and after excluding 29 million tons of import for SEZ refinery, the dutiable imports are about 161 million tons. Raw material import by SEZ units are exempt from import duty.

Sources said this mop up may help offset the loss of revenue the government may face because of likely cut in cess on domestic crude oil.

The Budget may announce an ad valorem rate of cess instead of Rs 4,500 per tonne fixed levy currently.

The ad valorem rate of cess will results in higher payouts when prices are high and lower when rates fall.

Currently, state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) pay a cess of Rs 4,500 per tonne on crude oil they produce from their allotted fields on a nomination basis. Cairn has to pay the same cess for oil from the Rajasthan block.

With oil prices dropping to 12-year low of under $30 per barrel, the cess translates into one-third of the realisation going away in just one levy.

The Budget may fix the levy at around 8-9% of the crude oil price to provide relief to domestic producers, sources said.