Prices of Superior Kerosene Oil and Light Diesel Oil Likely to Go Up

The prices of Superior Kerosene Oil and Light Diesel Oil are likely to go up as the Petroleum Division has proposed jacking up the Petroleum Levy (PL) and General Sales Tax (GST) on both the products.

The Petroleum Division has proposed that the GST and Petroleum Levy equivalent to High-Speed Diesel (HSD) will be applicable, as per the rates notified by the government from time to time.

As per the summary of the Petroleum Division, to be moved to the Economic Coordination Committee (ECC) of the Cabinet, the combined demand for Superior Kerosene Oil and Light Diesel Oil (SKO/LDO) was just around 0.4 percent (85,000 MT) of the total demand for petroleum products in the country during the fiscal year (FY) of 2021.

Moreover, the entire demand for these products is met through local refinery supplies, and no imports are required. However, the pricing of SKO/LDO in the country has always been highly subsidized with the lowest levels of taxation.

This has been done on the premise that these products are “a poor man’s fuel.” However, keeping in view the meager demand for the two products and heavy replacements made by abundantly available substitutes, this appears to be a mere cliché.

On the other hand, there is a significant price differential between HSD and SKO/LDO, which leads to adulteration by mixing these two products in HSD, thereby opening avenues for undue profiteering by unscrupulous elements and consequent loss of revenue on HSD supplies.

Accordingly, the genuine demand for SKO/LDO is estimated to be quite low, while the products are sold at very high rates in the general market as compared to the officially notified prices.

The comparative price break-up of SKO/LDO against HSD for July 2021 to August 2022 shows an average differential of about Rs. 27 and Rs. 31 per liter, respectively. This gap occurs on three accounts. Firstly, SKO/LDO falls into the consumer business mode, and therefore, the dealer’s margin is not applicable in the price calculation. Secondly, these products are supplied entirely by local refineries, and therefore, custom duty does not apply to them. Thirdly and predominantly, taxes (GST and PL) on these products are maintained at minimum levels.

Since the price differential vis-a-vis HSD is on the higher side, it will lead to more motivation for adulteration as well as space for oil marketing companies (OMCs) to swallow this gap.

In response to the situation, it would be appropriate if GST and PL equivalent to HSD were applied to generate some tax revenues for the government as well, rather than allowing an open field for OMCs to play.