In the wake of slump in the global crude oil prices, the Petroleum Minister Dharmendra Pradhan has asked the Ministry of Finance Arun Jaitley to consider a reduction in the cess levied on hydrocarbon exploration and production companies for producing crude oil. Pradhan urged the Finance Ministry to revise the rate to 10-12 percent from current 20 percent on domestically produced crude oil, to provide relief to producers hit by slump in prices.
Petroleum Minister further said that the Government had changed the method of cess calculation to an ad-valorem basis in the Budget. However, it should be in accordance with the dynamics of the market. Therefore, I have recommended to Ministry of Finance to look into expectations of E&P sector.
Pradhan said since Oil Industry Development (OID) cess is a production levy and is not passed through to the buyers, any upward revision results in higher tax incidence to the upstream companies. In addition to cess, other statutory levies like royalty (10-20 percent), VAT (5 percent) and Octroi (4.5 percent) are also payable on production/sale of crude oil.
In the Budget for 2016-17, Finance Minister Arun Jaitley had moved from a fixed Rs 4,500 per ton cess on domestically produced crude oil to a percentage of oil prices or ad valorem rate of 20 per cent, a move that was supposed to give relief to upstream firms. Oil producers including state-owned ONGC and private sector Cairn India pleaded for reduction in cess, as at crude oil price of $ 45 per barrel, the old rate of Rs 4,500 per ton and the new ad valorem rate even out and if oil prices are to go up, companies will end up paying more.
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