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Petroleum ministry for synchronisation of VAT with APM dismantling

Pradeep Puri & Subhomoy Bhattacharjee

The petroleum ministry has suggested to the finance ministry that synchronisation of the introduction of value-added tax for crude oil and petroleum products with the dismantling of the administered pricing mechanism in the oil sector on March 31, 2002 should not be disturbed at all.

According to the petroleum ministry, without such a calibration, the refineries will run into a difficult problem of having to coordinate with different states for selling their products. Till now, the variations in rates were being adjusted by the oil pool system under which the oil companies were compensated for such differences.

The ministry has argued that post APM-dismantling, there would be no mechanism to compensate the oil companies for under-recoveries due to irrecoverable taxes.

The apprehension of the petroleum ministry stems from the fact that under the VAT system, rationalisation of inter-state sales tax on petro-products will be difficult. The issue has been debated in the empowered committee of Chief Ministers which is monitoring the progress towards implementation of VAT by April 1, 2002.

The committee has decided that for the time being, the pricing of petro-products by states should be kept out of the purview of VAT. But according to sources, even inter-state taxation of petro products is not going to be easy under the VAT system.

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