Budget: Why Petrol, Diesel, LPG Prices May Go Up

Finance Minister Arun Jaitley is expected to provide some tax breaks to the salaried class in Saturday's Budget, analysts say. To compensate for the shortfall in revenues, Mr Jaitley may hike indirect taxes, including customs duty on crude oil imports, analysts say.

"It is likely that customs duty may be re-imposed on crude oil to boost revenue buoyancy," said domestic research agency ICRA.

Customs duty on crude oil was removed in June 2011, when prices had soared to about $120 a barrel. Brent crude is currently trading at $60 per barrel.

Re-imposition of 5 per cent customs duty on crude oil imports could shore up revenues by $3 billion (or Rs 18,000 crore at 60 rupee per dollar) and create a level playing field for domestic producers, analysts say.

Currently, imports do not attract duty, but domestically produced crude oil attracts 2 per cent Central Sales Tax (CST). Thus, 20 per cent of India's crude oil consumption that comes from domestic oil fields is taxed, whereas 80 per cent of imported oil goes untaxed.

Mr Jaitley, in his first full-year Budget on February 28, may seek to address the anomaly, analysts said. The government may choose to lower the customs duty when international oil prices rise and shield consumers.

If customs duty on crude is hiked, prices of petrol and diesel will go up, analysts say.

Meanwhile, tax payers in higher brackets, could have to pay market rates for cooking gas, StanChart said, quoting media reports.

"Cooking gas subsidies granted to recipients in the 20 per cent or 30 per cent income-tax brackets will likely be eliminated. So those in higher tax brackets may have to pay market prices for LPG," the investment bank said.

(With inputs from PTI)