By Mandana Ismail Abeywickrema
The government's claim that a reduction in
petrol prices would have a direct impact on
the taxes collected through fuel sales aimed
at funding defence expenditure and
development work has been rubbished by
workers attached to the Ceylon Petroleum
The workers allege that the government was
not reducing petrol prices in line with the
declining global fuel prices and the Supreme
Court directive issued on December 17, 2008,
as the government was in the process of
collecting funds to pay millions that it
owed to international banks following the
oil hedging deal.
They charge that the people have been forced
to suffer due to the short-sighted economic
policies of certain government officials.
They say that the government has provided no
real relief to the people via its "economic
stimulus package" presented last month.
The government without heeding a Supreme
Court directive to reduce the price of a
litre of petrol from Rs. 122 to Rs. 100 last
month decided to reduce the price of petrol
by only Rs. 2 per liter.
Sources from the JSS Petroleum Branch said
that the reduction of Rs. 2 from a litre of
petrol has not had any impact on the taxes
collected by the government from petrol
It has been calculated that after adding the
government taxes, the CPC could sell petrol
at Rs. 108 per litre, even after including a
profit margin for the CPC.
According to calculations, CPC sources
explained that a barrel of petrol if bought
at US$ 40, the price of a liter of petrol at
the time of being cleared at the port would
cost Rs. 28. After adding the import duty of
Rs. 35, excise duty of Rs. 25, provincial
council tax of Rs. 4, CPC costs of Rs. 9.70
and VAT of 5%, a litre would still cost only
Rs. 108 - 109.
Secretary, JSS Petroleum Branch, Ananda
Palitha pointed out that since a litre of
petrol could be sold at Rs. 108, inclusive
of all taxes and the Corporation's profit
margin, the reduction of Rs. 2 would not
have any impact on the taxes collected by
the government through fuel sales.
In fact, he explained that the Rs. 2 has
been reduced from the additional profit of
Rs. 14 per litre enjoyed by the CPC (Rs. 122
- Rs. 108 = Rs. 14). He reiterated that this
additional profit does not go to the
government and remains with the CPC.
Palitha therefore pointed out that the
government has not really passed on the
benefit of the declining global prices to
Only 30% imported
He also noted that the import duty of Rs. 35
imposed on imported refined petroleum
products has been added to the petrol sold
by CPC regardless of the fact that it
imported only 30% of its petrol quota in
Almost 70% of the country's petrol
requirement is refined in Sri Lanka. (CPC
sells 700mt of petrol per day. Of which
550mt is refined in Sri Lanka and the
remaining 150mt imported in the refined
form.) Therefore, Palitha alleged that the
CPC has slapped the Rs. 35 import duty on
the CPC's complete petrol quota.
In layman's terms, Palitha said that the CPC
currently applied the import tax on the
crude oil brought down to be refined in to
petrol. In addition, it is interesting to
note that the government was not passing the
benefit of the refinery prices to the
The government did not reduce the local fuel
prices when the global prices showed a
drastic decline and after much protest the
main opposition sought legal redress to
force a fuel price reduction.
Even after the Supreme Court issued a
directive calling for the reduction of fuel
prices, the government responded with
various claims and allegations of
conspiracies to justify the non-reduction of
Need for money
A key argument presented by the government
was that there was a need for money to fight
the war and engage in development
activities. It was said that money is earned
though various methods and taxes were a key
revenue generating measure.
Analysts have pointed out that the
government would not incur a huge revenue
loss due to a reduction in petrol prices.
Analysts noted that the government in its
revenue column in the 2009 budget has
calculated only Rs. 12 as the profit from
petrol sales in 2009 - Rs. 10 less than the
present profit of Rs. 22.
The CPC usually sells approximately 50
million litres per month and if the
government reduces the price of a litre to
Rs. 100 and incur a loss of Rs. 12 per litre,
it would only 'lose' a sum of Rs. 600
million. According to budget estimates, the
government loses Rs. 7,200 million from its
revenue annually due to fuel sales.
Considering the fact that the government
intends to spend Rs. 177,000 million for the
war and Rs. 225,000 million on public sector
salaries, analysts say that the amount the
government would lose due to a price
reduction in petrol would be minimal.
On the other hand, it is also pertinent to
note that the government has allocated a sum
of Rs. 6,000 million for Mihin Air, a
venture that has so far incurred a loss of
Rs. 3,200 million.
Also, analysts have pointed out that the
government imposed a tax of Rs. 5 on an
imported litre of diesel after the budget
presentation (not included in the 2009
budget estimates). According to statistics,
the government sells up to 140 million
litres of diesel per month and the
imposition of the new tax ensures the
government an additional income of Rs. 8,400
million per year.
Analysts note therefore that the government
could easily use the Rs. 8,400 million
earned through diesel sales to cover the
losses incurred by the reduction of petrol
Referring to the price of diesel, Palitha
said that the government provided a litre of
diesel to Lanka Marine Services at Rs.
49.65, which is the current local market
He said that even the Ceylon Electricity
Board (CEB) was sold a litre of petrol Rs.
10 higher than the price offered to the
He also said that turbine oil used by the
aviation industry was sold by the CPC at Rs.
48.95 per litre. Palitha argues that the CPC
although in a position to offer greater
relief to the consumers, it was not doing
Petroleum and Petroleum Resources Minister
A.H.M. Fowzie on an earlier occasion told
The Sunday Leader that the CPC had to sell
fuel to ships through bunkering at current
international market prices. He said that if
the CPC did not follow this formula, it
would lose its competitiveness in the
However, a litre of diesel is currently sold
at Rs. 70 to ordinary consumers.
Palitha also explained that the government
could reduce the price of a litre of
kerosene even further, as the country's
total kerosene requirement is refined in the
The CPC refines 900mt of kerosene when the
required amount stands at 300mt. The balance
is sold as furnace oil. Palitha observed
that the government instead of lamenting on
possible losses the CPC would incur due to a
fuel price reduction should look at means of
increasing its revenue.
He said that the CPC should look at
commencing the manufacturing and
distribution of lubricant oils, a plan that
has been in the pipeline since President
Chandrika Kumaratunga's tenure in office. He
explained that since the price of lubricant
oil has seen a drastic increase, the CPC
should re-enter the lubricant market.
Another area CPC needs to consider according
to Palitha is the agro chemicals sector.
Since the CPC currently produces 25% of the
local demand, there would be a greater
demand if the Corporation produced the
country's complete agro chemicals
He also noted that the CPC could develop
even further by taking over the LMSL land in
the port, following the recent Supreme Court
"The government is spending millions of
rupees on wasteful endeavours, especially
those like Mihin Air. If funds allocated to
that are used to develop the areas attached
to the CPC as mentioned above, the
government would be in a position to reduce
fuel prices without any slashes in taxes,"
Taxes imposed on petrol
According to CPC sources following are
the taxes imposed on a litre of petrol
by the govt.
Import duty Rs. 35
Excise duty Rs. 25
Provincial council tax 1%
Taxes imposed on diesel
According to CPC sources following are
the taxes imposed on diesel by the
Provincial Council tax