January 21, 2006, The Western Times

Submitting its pre budget memorandum to Mr P Chidambaram, Finance Minister in the capital today, Consumer Unity and Trust Society (CUTS) called for rationalization of taxes on petroleum products in the forthcoming budget in order to bring down 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. Thus, by high imposing taxes and duties on petro products, government is actually fuelling inflation,” Mr Pradeep Mehta, Secretary General, CUTS said.

The current ad valorem duty structure on petro products should also be replaced with a specific one. This would remove the cascading effect of a rise in oil prices and contain inflationary pressures, the pre budget memorandum suggests.

Pointing out the anomaly in calculating subsidy, the memorandum has stated 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 the oil companies. The subsidy amount is therefore unduly inflated. The government should take immediate measures to directly support the needy rather than canalize subsidies through oil PSUs, which distorts the market process.

A Petroleum and Natural Gas Regulatory Board should be established to foster competition and ensure transparency in the determination of petroleum products. CUTS has further demanded creation of a price stabilization fund to check the high volatility of crude prices. The fund may be sourced from the cess collected under the Oil Industry Development Act.