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Finance Minister Arun Jaitley may look at reimposing 5% customs duty on crude oil imports to shore up revenues by USD 3 billion and create a level-playing field for domestic producers. Presently, the government does not levy any import or customs duty on crude oil imports.
On the other hand, domestically produced crude oil attracts 2% central sales tax, something which imported oil is exempted from. Given that there is no customs duty on imported crude oil, the CST levy places domestic producers at a significant disadvantage vis-a-vis imported crude.
Thus, 20% of India's crude oil consumption that comes from domestic oil fields is taxed, whereas 80% of imported oil goes untaxed. Options before the Finance Ministry is either to remove the CST imposed on domestic crude, thus incentivizing domestic explorers. Alternatively, taking benefit of the current low oil prices, the government can re-introduces customs duty on crude oil imports.
At 5 percent basic customs duty, the government will earn more than USD 3 billion on an annualised basis. Higher revenues from customs levy will aid in government strategy to meet its fiscal deficit target.
Also, introducing parity between imported and domestic crude oil will also send right policy signals to current and future investors in India's upstream sector.
Domestic exploration and production sector would get a boost when they are assured that they will not be placed at a disadvantage vis-a-vis imports.
