January 22, 2006, The Hindu

A consumer protection body has called for an overhaul of the tax structure on petroleum products in the forthcoming budget in order to bring down inflation. In a pre-budget memorandum submitted to the Union Finance Minister, P. Chidambaram, here on Saturday, the Consumer Unity and Trust Society (CUTS) has called for “rationalisation” of taxes on oil products.

The CUTS Secretary-General, Pradeep Mehta, pointed out that by imposing high taxes and duties on petro-products, the government was actually fuelling inflation. “Concerns are expressed over inflation and the impact of rise in petro-product prices on prices of other commodities is also acknowledged. More than half of the retail selling price of petrol and one-third of the selling price of diesel is made up of Central and State duties,” he said in the memorandum.

The consumer protection agency has proposed that the current ad valorem duty structure on oil products should be replaced with a specific one.

Pointing out the anomaly in calculating subsidy, the memorandum notes that the method of calculating subsidies is based on import-based parity pricing of petroleum products and not on the basis of unrecovered costs of oil companies. The subsidy amount is therefore unduly inflated, it points out.

Besides, CUTS has suggested that a Petroleum and Natural Gas Regulatory Board be established to foster competition and ensure transparency in the determination of prices for petroleum products. It has also demanded creation of a price stabilisation fund to check the high volatility in crude prices.

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