24 March, Kathmandu. The government has decided to give a 50 percent discount on customs duty and infrastructure development tax to reduce the impact on the people due to the increase in the price of petroleum products.

Announcing the decisions of the cabinet meeting held on Tuesday, Federal Affairs and General Administration Minister Pratibha Rawal informed that the government has taken important steps from tax exemption to consumption control to manage the increasing loss of fuel and the crisis.

Minister Rawal also said that the government is facing a huge financial loss due to the recent import of fuel. Nepal Oil Corporation has incurred a loss of 11.72 billion rupees in 15 days by selling fuel at the current price structure.

‘This is not a small amount,’ Minister Rawal said, ‘so this problem is not just about price, it is a joint problem of supply chain, tax, cost, consumption and management, so the government has moved forward with some decisions.’

Minister Rawal presented the data that 34 thousand kiloliters of petrol, 83 thousand kiloliters of diesel, 865 kiloliters of kerosene, 2,615 kiloliters of internal aviation fuel, 5,892 kiloliters of external aviation fuel and 1,522,444 cylinders of LP gas were sold in the last 15 days even with minimum consumption.

Now consumers can get cheap?

With the government’s decision to reduce the tax on petroleum products by 50 percent, interest has increased on how much tax will be reduced on which fuel.

After the implementation of the latest decision of the Council of Ministers, infrastructure development tax of Rs 10 per liter which is currently charged on petrol and diesel will be reduced by half to only Rs 5. The reduction in infrastructure tax alone will reduce the tax burden by Rs 5 per litre.

In addition to this, the government has also reduced the customs duty by half. According to the existing system, customs duty was charged at Rs 25 per liter on petrol and Rs 12 per liter on diesel.

Similarly, while importing LP gas for cooking, a tax of Rs 90 per cylinder was being levied. With the new decision of the government, all these taxes will be reduced by 50 percent.

How much tax burden is reduced on which fuel?

After the implementation of the new system, the total tax on petrol will be reduced by Rs 17 (Rs 12 for customs and Rs 5 for infrastructure).

Similarly, the tax burden on diesel will be reduced by 6 rupees towards customs and 5 rupees towards infrastructure, a total of 11 rupees. On the other hand, the import duty of Rs 90 on gas will be reduced to Rs 45.

However, this decision has not been implemented immediately. According to Manoj Thakur, the spokesperson of the corporation, it will be known only after the cabinet decision is published in the gazette and the instructions for implementation are issued.

“We have also come to know from the news that the government has decided to give tax exemptions, but there is no official information about which items have been exempted and when they will be implemented,” said spokesperson Thakur.

How likely is the market price to fall?

Even though the tax rate has been drastically reduced, the price of petrol purchased by the general consumer is unlikely to be cheaper immediately. According to the corporation, due to the world market price, the corporation is currently losing 34 rupees per liter of petrol and 120 rupees per liter of diesel.

The data shows that even after the tax exemption given by the government, the corporation will still have a loss of Rs 17 per liter on petrol and Rs 109 per liter on diesel. As there is a loss of 416 rupees per cylinder in gas too, there is no condition for the corporation to make a profit just by reducing the tax.

An official of the corporation said that even though the tax reduction has given some relief to the loss-making corporation, it is not in a position to provide relief to the consumers by adjusting the prices.

“As our deficit gap is very deep, the market price cannot be reduced as soon as the tax is cut,” he said, “However, consumers can get cheap fuel only if the board of directors decides or if there is a vertical instruction to reduce the price from the Prime Minister and the Supply Secretary.”

1 billion 49 crore relief in losses

When the government gives a 50 percent discount on customs duty and infrastructure tax, the corporation will get a relief of about 1.49 billion rupees. However, the loss of more than 10 billion 23 billion remains.

The corporation said that despite the heavy losses, the supply of petroleum products has been maintained smoothly. Corporation spokesperson Thakur said that there is no problem in the supply of petroleum products.

“We are getting as much fuel as we ask for,” he said, “even if there is a deficit, we have facilitated the supply.”

According to the corporation, the tax adjustment will help to ease the supply system to avoid the crisis created by the increase in the price of crude oil in the international market, but for a complete solution, the main option is to reduce consumption and adopt frugality.

A welcome tax cut on fuel should provide immediate benefits to consumers

Consumer rights activist Madhav Timalsina welcomes the decision to reduce the tax on petroleum products and demands the government to give its direct benefits to the consumers immediately.

He emphasized that the corporation should not be reluctant to reduce the price by making an excuse of loss and the cabinet decision should be implemented immediately.

“This is a demand that consumers have been raising for a long time, the price had increased unnaturally due to the government imposing excessive customs and taxes,” said Timalsina, “Now that the government has decided, the corporation should immediately reduce the price of diesel-petrol and give relief to the consumers without making excuses.”

Timalsina says that although the corporation can refuse to reduce the price by arguing that it is in loss, it is obliged to accept the government’s decision.

“The decision of the Cabinet is final and it should be implemented by publishing a notice in the Gazette from tomorrow,” he added.

The government’s decision to cut taxes prevents further price hikes

Taking the government’s decision to reduce tax on petroleum products as a positive step, Former Commerce Secretary Purushottam Ojha says that the possibility of immediate price relief to consumers is low.

According to him, this decision will help to stop the price increase and provide relief to the oil corporation which has suffered huge losses.

His analysis is that the government’s tax exemption decision will prevent further price increase when the price of crude oil is continuously increasing in the international market and the corporation is selling fuel at a loss.

“The corporation is already selling fuel at a huge loss, in such a situation, the tax discount helps to cover the corporation’s losses rather than transferring the reduced price to the consumers,” said former secretary Ojha, “So I don’t think that the price of petrol-diesel will drop immediately, but it plays an important role in keeping the rising price stable and not increasing the price further.”

He said that this step of the government seems to be aimed at preventing further harm to the consumers and it should be taken as an important step taken in favor of providing relief to the people.

How much tax are consumers paying now?

If we look at the current tax structure, consumers pay around Rs 67 (Rs 66.98) to the state when they buy a liter of petrol. Various topics like customs, road maintenance, pollution control, infrastructure and value added tax (VAT) are included in this.

Similarly, when one liter of diesel is used, 49 rupees 28 paisa are deducted from the pocket of the consumer as various taxes.

However, the government has made it clear that there is an obligation to adjust the price when the price of fuel increases in the world market. ‘There is a compulsion to adjust the price, the government does not hide this fact,’ Minister Rawal said, ‘therefore, it seems practical to adjust the price of petroleum products.’

Minister Rawal made it clear that the government is seeking the support of the people at this time of fuel crisis.

“The government of Nepal wants to tell everyone that the government is transparent, does not hide the truth, but also understands the pain of the people,” she said. “Let’s save energy, be moderate and stand together.”