Budget 2018: Rs 8 road cess to keep fuel price up

Though the excise duty on oil has decreased, consumers are deprived of any benefit as a new cess has been added to it, thereby nullifying the cut. If this was not enough, even some buses, luxury cars and bikes and its maintenance could get costlier due to increase in import duties.

In its Budget on Thursday, the government reduced the basic duty by Rs 2 per litre for petrol and diesel, besides doing away with additional excise duty of Rs 6. It has not helped in bringing the price of the fuel down as the government has introduced a new cess of Rs 8 per litre.

Sudhir Mathur, CEO, Vedanta Cairn Oil and Gas, said he was seeing little action in the Union Budget to address the immediate need of the economy to attain energy security and reduce the burden of crude oil import at a time when oil prices are rising.

Contrary to the burden of import, domestic production will add substantial revenues to the government's exchequer, at the same time create jobs and help the economy at large. "The best way is to create an eco system to encourage domestic production and cut down dependence on imports with a sustained, targeted approach, " Mathur noted.

There is a strong view among industry stakeholders that the Budget falls short of the industry's expectations on several tax-related issues such as reduction in cess on crude oil for the pre-NELP blocks, clarity in the definition of mineral oil and sunset clause for Exploration and Production (E&P) companies.

Discussing the finer details over the impact of the budget, K Ravichandran, senior VP and Group Head Corporate ratings, ICRA Limited, said the government has provided a subsidy of Rs 21,733 crore for 2018-19 , marginally lower than Rs 22,209 crore in 2017-18 . The subsidy provided could fall short by around Rs 11,000 crore if crude oil prices and INR/USD parity were to stay at $70/bbl and 65, respectively, for 2018-19 and the current under recovery sharing mechanism continues. "Having said that, the amount is manageable and will not materially impact the liquidity and profitability of the OMCs and the upstream companies. The budget has also provided for additional subsidy for LPG connections in rural areas, which will increase LPG penetration and help sustain LPG volume growth at 8-10%," said Ravichandran.

Raju Kumar, Tax Partner (oil & Gas sector), at consultancy firm EY India, said the Oil & Gas sector is still looking for necessary impetus to augment domestic production and to promote ease of doing business in India, more so, with the introduction of new Hydrocarbon Exploration & Licensing Policy (HELP), which replaces the earlier New Exploration Licensing Policy (NELP) and with an ongoing bidding round.

The changes brought about by the Union Budget may also hit the luxury vehicle segment as the increase in custom duties on certain imported components and completely build units is surely to get passed on to end customers. Further, since customers will be burdened with higher maintenance costs, it is likely that this duty hike may delay their routine servicing, thereby affecting safety and environment at large.

Kavan Mukhtyar, Partner& Leader- Automotive, PwC India, said that by increasing the duties, the government is clearly hinting at promoting 'Make-in-India'. Fully knocked down CKD imports increased from 10% to 15%. Motor vehicles carrying more than 10 people and motor vehicles used for transport of goods which are imported in Completely Built Unit ('CBU') which earlier attracted a basic customs duty of 20% would now attract 25% basic customs duty.

Commenting on the Budget, Roland Folger, Managing Director & CEO, Mercedes-Benz India, said that the increase in the basic customs duty of auto parts, accessories and CKD components varying from 5% to 10%, clubbed with the new Social Welfare Surcharge at 10%, at a time when the auto industry is reviving, is unfortunate, and comes as a surprise. We believe it is going to impact the auto industry, consumers and is also against the spirit of 'Make in India'. "The auto industry ended 2017 on a positive note, where it grew despite multiple policy disruptions in the previous year; but the customs duty hike is likely to reverse the growth trend," Folger said.

Rahil Ansari, Head, Audi India, said, "Increase in custom duty and introduction of Social Welfare Surcharge in lieu of an Education Cess (which is higher than the erstwhile Cess), is going to definitely affect prices again and will further confuse the customer."