INDIA BUSINESS WORLD - FEBRAURY 16^th - FEBRAURY 29^th - 2008

SPECIFIC DUTY TO REPLACE THE AD VALOREM PART OF THE EXCISE DUTY ON OIL

Presenting the Annual Budget for a fifth consecutive year, the Finance Minister replaced the ad valorem part of the excise duty on unbranded petrol and unbranded diesel with a specific duty.

In order to remove "misinformation", Sri P Chidambaram came out with a clearer picture of excise duty, to be based on the quantity of oil rather than its price. The ad valorem part of the excise duty on unbranded petrol and unbranded diesel is replaced by an equivalent specific duty of Rs.1.35 per litre.

Using the hidden weapon in his armoury to control rising prices, by overcoming the double edge sword effect of ad valorem duty, which substantially enhances the tax ingredient of the price, when the price rises and decreases it when the price falls, is hurting more in the present inflationary environment.

Specific duty will be a welcome move in price control as the price of oil are rising upward worldwide. The move will make the tax ingredient of price static and allow the market to play its part, thereby reducing the confusions created due to frequent changes in the ad valorem based excise duty which was bound to change according to the frequent fluctuation in oil prices. This will also mean that the revenue for the Government from oil will remain static, and independent of spiraling prices. However, Mr. Chidambram is quite clear that there will be no impact on retail prices.