Ethanol May Get Declared Good Status, Excise Cut Boost

NEW DELHI: The government is likely to slash the 16% central excise duty on ethanol and classify it as a declared good in a bid to impose a uniform levy on the product across the country. The move aims at incentivising oil companies for doping ethanol with petrol to partly neutralise the impact of rising global crude prices which are at a kissing distance from $100 per barrel. The recently-constituted group of ministers (GoM) on fuel prices is expected to take up the proposal.

“The GoM is expected to consider petroleum ministry’s suggestion to reduce the central excise duty on ethanol for ethanol-blended petrol (EBP) programme, make it a declared good and remove all local fees and duties for inter-state movement,” an official source said.

The duty rationalisation is also needed to have price parity between imported ethanol and domestically-procured ethanol. On an average, oil companies pay Rs 28 per litre for ethanol procured domestically whereas its landed cost at domestic ports is estimated at Rs 21 per litre. Sugar producers in the country are facing a glut in production and a duty cut will help ease the situation as oil companies will be incentivised to increase offtake.

Besides the 16% central excise duty, sales tax on ethanol varies from 4% to 20% in different states. Besides, states levy various surcharges, export fee (from one state to another state), import fee, permit fee, licence fee, administration fee and state excise. For example, Punjab levies a 20% sales tax (plus 2% surcharge on sales tax) and Re 1 per litre import permit fee on ethanol. In Maharastra, sales tax is 4%, in Goa it is 19% and in Tamil Nadu it is 8% (plus 5% surcharge on sales tax).

Commenting on the October 9 decision taken by a GoM, which made a 5% ethanol blending mandatory across the country — except Jammu & Kashmir, north-eastern states and island territories — an official in petroleum ministry said, “The existing 5% EBP programme is subject to commercial viability in procurement of ethanol by oil marketing companies (OMC). If 5% blending of ethanol is to be made mandatory across the country as per the recommendation of the GoM, it is to be ensured that OMCs do not suffer any under-recoveries in selling EBP.”

The October 9 decision has also mandated a 10% blending of ethanol with petrol from October 2007 and the same would be mandatory from October 2008. Oil ministry has argued that OMCs are facing certain constraints with regard to free inter-state movement of ethanol and levy of duties by states. “Therefore, increasing the ratio of 5% to 10% blending optional from October 2007 and thereafter mandatory from October 2008 has to be examined from the point of view of free inter-state movement of ethanol and a conscious decision taken,” an official source said. It is important to note that not all states produce ethanol. Ethanol producing states are Uttar Pradesh, Karnataka, Tamil Nadu, Andhra Pradesh, Maharastra, Gujarat and Bihar.