At the time, when petrol and diesel prices are at record highs, the government is planning to increase the taxes on crude derivatives with an aim to maintain the fiscal deficit target of the year and fill the losses of oil marketing companies (OMCs).  Sources close to the development informed Zee Business that the government is likely to increase the taxes on crude derivatives by Rs3 to Rs 5 per litre. This hike will be announced within a week. Also Read - Modi Govt Emptying Your Pockets, Giving Money To Friends: Rahul Gandhi on Fuel Hike

The sources informed that petrol, diesel, gas and cylinders will be kept out from the hike. Crude derivatives are a by-product of the crude oil and it comes out when it is refined. There more than 76 by-products of the crude and they include products like monomer, polymer, polyester and wax among others. Also Read - Respite on Petrol, Diesel Price: West Bengal Govt Reduces Fuel Tax by Re 1/Litre

The problem that led to the decision?  Also Read - Petrol, Diesel Prices Rise for Third Straight Day

The oil ministry has asked the finance ministry to fill the losses being incurred by the state-owned OMCs, like Indian Oil Corp (IOC), Hindustan Petroleum Corp Ltd (HPCL) and Bharat Petroleum Corp Ltd (BPCL), on the sale of petrol and diesel.

Any reduction in the taxes on petrol and diesel will result in a revenue loss to the government. For instance, reduction of a rupee will result in a revenue loss of Rs 13,000 crore. This means the government will not be able to meet its fiscal deficit target of the year like the previous fiscal year, which was increased form decided 3 percent to 3.2 percent.

However, increase in the taxes on crude derivatives will help it to maintain the fiscal deficit and fill the losses of the OMCs.  If seen from today’s perspective when petrol is being sold at Rs 75.61 a litre in Delhi, the OMCs are incurring a loss of Rs 4.60. Similarly, in case of diesel, the OMCs are having a loss of Rs 3.60 per litre when it is being sold at Rs 67.08 a litre.

Fruit of the decision

The government wants to adjust the revenue losses of the OCMs by increasing the taxes on these by-products. Undoubtedly, the decision, if implemented, will help the government in reducing the burden on common man, who is facing the heat of increasing prices of the petrol and diesel. But it will increase the burden on companies that import these by-products for manufacturing their products.

The maximum burden of the decision will be felt by paint companies whose 60 percent raw materials are derived from the crude-derivatives. An analysis suggests that Asian Paints quarters profit margin will go down by Rs 100 crore, in the last quarter it saw a profit of Rs 480 crore. Similarly, Berger paint’s profit margin may be halved.