THE government has systematically choked its cash cow, the petroleum industry, with its cheap-oil policy. Historically, the government’s largest source of tax and non-tax revenue and a valuable cushion against the troughs in economic cycles, the industry is today barely able to keep its head above water. In the current downturn, therefore, the government can no longer fall back on this sector to pump up its revenue position. Not only has tax collection from this sector dwindled, but dividend payouts by government-owned oil companies too have been severely cut.
Three years ago, the sector accounted for nearly a quarter of the government’s gross tax and nontax revenue. In FY09, the figure is estimated to have fallen to 17%, the outlook for the next financial year is not very encouraging either.
Again, in FY05, oil companies accounted for over a third of the government’s total dividend income and made up 14% of its corporate tax kitty. In FY09, this sector’s contribution is expected to fall to 14% and 6%, respectively. Dividends totalling Rs 7,641 crore last year are likely to fall to Rs 5,500 crore for FY09.
Over the years, the government has not allowed oil companies to raise prices in line with international trends, which has drained their profitability. Further, excise and customs duties on petro products were cut in 2004, and again in 2008.
The three public sector oil marketing companies — Indian Oil, HPCL and BPCL — reported losses worth Rs 11,000 crore for the first nine months of the year and may end up paying neither dividend nor corporate tax for FY09. At the same time, the largest dividend payer, ONGC, is feeling the pressure of subsidy sharing and a fall in crude oil prices.
While duty cuts have ensured that indirect tax collection from the sector has been stagnant for the past three years, public sector oil companies’ poor profitability has hit direct tax collection. The government will also lose revenue on the indirect tax front, with the reduction in tariffs and fall in petroleum product prices reflecting on excise and customs duty collections.
The excise contribution by 10 leading listed petroleum companies, which was 13.4% higher in the June 2008 quarter, fell by 4.8% on a y-o-y basis in the December 2008 quarter to Rs 14,300 crore. Excise duty collections for the year are likely to remain flat during FY09, even though Essar Oil’s refinery provided Rs 4,500 crore in incremental excise revenues. On an aggregate basis, the excise contribution of the listed players of the petroleum industry is declining. The scene is even more bleak in the case of corporate tax collections. The top 10 listed companies in the petroleum industry have witnessed a 35% reduction in their tax provisions in April-December 2008.
Three years ago, the sector accounted for nearly a quarter of the government’s gross tax and nontax revenue. In FY09, the figure is estimated to have fallen to 17%, the outlook for the next financial year is not very encouraging either.
Again, in FY05, oil companies accounted for over a third of the government’s total dividend income and made up 14% of its corporate tax kitty. In FY09, this sector’s contribution is expected to fall to 14% and 6%, respectively. Dividends totalling Rs 7,641 crore last year are likely to fall to Rs 5,500 crore for FY09.
Over the years, the government has not allowed oil companies to raise prices in line with international trends, which has drained their profitability. Further, excise and customs duties on petro products were cut in 2004, and again in 2008.
The three public sector oil marketing companies — Indian Oil, HPCL and BPCL — reported losses worth Rs 11,000 crore for the first nine months of the year and may end up paying neither dividend nor corporate tax for FY09. At the same time, the largest dividend payer, ONGC, is feeling the pressure of subsidy sharing and a fall in crude oil prices.
While duty cuts have ensured that indirect tax collection from the sector has been stagnant for the past three years, public sector oil companies’ poor profitability has hit direct tax collection. The government will also lose revenue on the indirect tax front, with the reduction in tariffs and fall in petroleum product prices reflecting on excise and customs duty collections.
The excise contribution by 10 leading listed petroleum companies, which was 13.4% higher in the June 2008 quarter, fell by 4.8% on a y-o-y basis in the December 2008 quarter to Rs 14,300 crore. Excise duty collections for the year are likely to remain flat during FY09, even though Essar Oil’s refinery provided Rs 4,500 crore in incremental excise revenues. On an aggregate basis, the excise contribution of the listed players of the petroleum industry is declining. The scene is even more bleak in the case of corporate tax collections. The top 10 listed companies in the petroleum industry have witnessed a 35% reduction in their tax provisions in April-December 2008.
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