Private and public sector oil firms have opposed levy of five per cent customs duty on crude saying this would make import of products like jet fuel cheaper than manufacturing them in the country.
Finance Minister Pranab Mukherjee has in his Budget for 2010-11 brought five per cent import duty on crude oil back to garner Rs 10,000 crore (Rs 100 billion) in revenues. He had also increased excise duty on petrol and diesel by Re one per litre to mop up an additional Rs 7,000 crore ( Rs 70 billion).
Consequent to levy of five per cent customs duty on the raw material (crude oil), the import duty on some of the finished products (not all) have been increased by the same amount to retain the difference in duty on raw materials and finished goods.
However, products like kerosene, domestic LPG, naphtha for fertilizer and aviation turbine fuel (ATF), which consume roughly 26 per cent of the crude oil when refined, continue to have zero customs duty, the Petroleum Federation of India (PetroFed), an apex body of oil and gas companies, said.
"Thus the customs duty on raw material is higher than the customs duty on finished goods in these cases," PetroFed, which represents both public and private firms, said in a post-Budget memorandum to the government.
The phenomenon of import duty on products being lower than raw material is called negative tariff protection. The negative impact of this on refineries is estimated to be Rs 7,000 crore (Rs 70 billion), it said.
