Petroleum products: ministry recommends cut in GST to token 10 paisa per litre

The Ministry of Petroleum and Natural Resources has recommended to the Economic Co-ordination Committee of the Cabinet to cut General Sales Tax on petroleum products from 15 percent to token Rs 0.10 per litre. In its summary now with ECC for approval, the ministry said.
"The existing 15 percent GST on MS, HOBC, SKO, HSD and LDO may be reduced to token Rs 0.10 per litre." It estimated GST on these products which is on MS Rs 8.98, HOBC Rs 10.54, SKO Rs 5.41, HSD Rs 6.54 and LDO Rs 5.82 per litre, respectively. Estimated annual impact, based on current rates and estimated volume of MS, HOBC, HSD, SKO & LDO for 2007-08, was Rs 83 billion.
The summary said the prices of oil in international market have increased exorbitantly during the last 4 years. The average fortnightly international Arab Gulf market prices increased from 219 percent to 334 percent from May 2004 to June 2008.
The average price of Arab Light crude oil increased from $32.96 per barrel in May 2004 to $124.27 per barrel in June 2008 while the HSD price from $37.55 per barrel to $163.12. The prices in international market during the current year have increased in the range of 61 percent to 104 percent.
This price hike has altered the absolute values based on percentage margins allowed to Oil Marketing Companies (OMCs) and also to the revenue collection agencies of the government. It added revision of the existing price formula was inevitable.
The ministry maintained that import parity pricing (IPP) formula for refineries was introduced in 1993 and determination of ex-refinery prices of petroleum products of local refineries was linked with international market prices of petroleum products published in Plaits Oilgram for Arab Gulf Market and the refineries were guaranteed minimum 10 percent rate on return on their paid-up capital with upper limit of 40 percent.
The pricing formula was revised in December 2000 with increase in the rate of marine insurance from 0.045 to 0.108 percent and inclusion of import incidentals (0.4 percent of C&F). Also in the price calculation formula for ex-refinery price for MS 83 RON was replaced by MS 87 Ron and HOBC (Arab Gulf Naphtha Spot price plus Caltex Bahrain differential with upper limit of $60/ton).
Again changes were made in the formula in 2001 by modifying the basis of premium ie from KPC premium to actual weighted average premium on imports, and allowing 0.5 percent ocean loss in import incidentals ie from 0.4 percent to 0.9 percent of C&F price. The ECC has circulated the summary to the concerned departments for comments on the proposed petroleum products pricing formula.