Sri Lanka cuts import tax on fuel, encourages carcinogenic diesel
ECONOMYNEXT – Sri Lanka has cut import duties on fuel, bringing taxes on diesel, which has been linked with cancer to a new low of only 09 rupees a litre, hitting state revenues, customs data showed.
The import duty on petrol has been cut from 25 rupees to 15 rupees and diesel from 12 rupees to 09 from December 15.
Petroleum minister Arjuna Ranatunga told parliament on December 08, that in addition to the import duty of 25 rupees, a litre of petrol was also charged an excise duty of 27 rupees, port and airport levy of about 4.77 rupees and national building tax of 0.88 rupees.
Total taxes totalled 57.65 rupees (49 percent) on average on a 117 rupee per litre retail price.
Without taxes a lire of petrol could be sold at 77.48 rupees, Ranatunga said.
Sri Lanka sells diesel sharply below petrol at 95 rupees a litre, though it is more expensive to import than petrol. Refined petrol is only about 75 US dollars a barrel in Singapore, while diesel is over 79 US dollars a barrel.
The duty waivers will help improve profits of both listed Lanka IOC and Ceylon Petroleum Corporation while hurting state revenues and the deficit.
LIOC has said it sell about 600 metric tonnes of petrol a day and Ceylon Petroleum Corporation about 2,500 metric tonnes.
Sri Lanka does not have a price formula for fuel yet. It is expected to come on stream in March.
Global commodity and stock prices have started to go up with the US credit system recovering. A US tax cut may further worsen the US state finances and hit the credit system and push inflation up, if the Fed does not tighten monetary policy sufficiently, analysts have warned.
Sri Lanka subsidizes diesel use with lower taxes, despite it being a more expensive fuel to import due to the prevalence of Mercantilist cost-push cost push doctrine.
Sri Lanka cut fuel prices by 22 percent in 2015 and inflation has surged over 17 percent since then.
Sri Lanka has seen excessive use of diesel due to underpricing. Diesel exhaust is classified as “carcinogenic to humans,” by the International Agency for Research on Cancer, and US Enviromental Protection Agency has classified it as “likely to be carcinogenic to humans.”
Kerosene, which is similar to jet fuel is the most expensive fuel to import, but is sold at 44 rupees a litre by government, following price cuts by ex-Finance Minister Ravi Karunanayake.
Kerosene is used by several large factories and the fisheries sector. The government has encouraged the mixing of kerosene with petrol and the sale of substandard fuel by the large subsidy. (Colombo/Jan05/2018)