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Tax Cuts On Fuel Unlikely In India

by Mary Swire,, Hong Kong

29 March 2011

The Indian Finance Minister has expressed his concern about the current problems in Libya and the rise in crude oil prices, but he has not suggested that there will be any cuts in tax on oil, petrol or diesel.

"The uncertainty in the Middle East may cast its shadow. I don’t know what impact Libya may have. Nearly 67m tonnes of oil came from the Middle East last year. If the situation remains unstable, it is natural to express concern,” Pranab Mukherjee told the upper house of India's parliament.

The government deregulated petrol prices last year, however diesel continues to be on the regulated list. India's fuel retailers selling diesel at state-set prices have been demanding a cut in taxes on crude oil to reduce the impact on profitability, however Mukherjee said this was not a good idea.

"Some members have asked me why I am not shifting from ad-valorem to specific duties. I know petrol prices are increasing. But I don’t think it is prudent to change the rate structure on petrol and diesel. We shall have to find out other mechanism if possible," he pointed out.

"If the situation remains unstable there, it is quite natural for anyone to express concern and to hope and to try, if possible, to restore normalcy, peace and stability in the region because our vital interests are linked to that."

Some commentators have suggested that the government will take a decision on diesel price deregulation after assembly elections in some states scheduled for April-May.

TAGS: tax | economics | India | oil and gas | excise duty | regulation

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