The Oil Ministry wants the cess on crude oil to be reduced or removed as it is a burden on the oil companies in a low pricing regime and is not being used for developing the sector. However, the finance ministry is not in favour of the prospect as it means a loss of Rs 16,000 crore annually.

Cairn India, Oil India and Oil and Natural Gas Corporation have been pursuing the government for reducing the cess which has been cutting into their profitability as the price of crude oil started falling from the middle of 2014. Prices have plunged by two thirds of their levels although the cess continues to remain unchanged at Rs 4,500 per tonne.

Top officials of the Finance Ministry in a recent meeting wanted to know from the oil ministry if the loss generated by reducing or removing the cess could be recovered from alternative taxation sources. The finance ministry had collected around Rs 15,934 crore from cess imposed on crude oil back in 2014-15.

The reason behind the introduction of oil cess was for gathering added revenue which may be used for developing the sector. However, for quite some time now, the entire corpus is deposited in the Consolidated Fund of India. The sector receives nothing. This has prompted the oil ministry to put forth such a proposal.

However, even though the cess might not be spent directly on the reason for which it was brought in the first place, the government supports the sector by partially subsidising the state run oil retailers to sell fuel below market rate.

A steep drop in oil prices and the deregulation of diesel and petrol sales have drastically shrunk the government’s burden of oil subsidy.