The finance ministry has braced itself for a mid-year cut in duties for the petroleum sector and has made provisions for those in its Budget projections for 2003-04.

While the ministry had been able to avoid any action on a mid-year cut in duties in the debate on the third and final batch of supplementary demand for grants in Parliament, senior officials said they might have to do it soon.

Accordingly, revenue from indirect tax in the Budget for 2003-04 is projected to rise only 11 per cent for excise duties.

In absolute terms, the target is only Rs 96,791 crore (Rs 967.91 billion), from Rs 87,383 crore (Rs 873.83 billion).

Customs duty is projected to grow even less by 8.5 per cent to Rs 49,350 crore Rs 493.5 billion) from Rs 45,500 crore (Rs 455 billion) in 2003-04.

This is lower compared to the nearly 23 per cent rise in excise duties projected in the Budget for 2002-03.

However, collection of Customs duty was projected to grow at a lower rate of 4.6 per cent.

But this was due to the combined impact of lower growth in aggregate imports and the reduction in the peak rate of Customs duty from 35 to 30 per cent, including that on non-public distribution system kerosene from 35 to 20 per cent.

The officials said given the importance of petroleum in the indirect tax kitty, a decision to reduce the rates on either Customs or excise duties for this sector was a difficult one.

For instance, in 2002-03, the additional duties on petroleum, cess and other duties on the product accounted for around 11 per cent of the total indirect tax collection of Rs 1,15,696 crore (Rs 1,156.96 billion).

This did not include the percentage of duties on crude and petroleum products as part of the basic Customs and excise duties.

Though at the instance of the Prime Minister's Office, the revenue department and the ministry of petroleum had formally decided to review every quarter, the trends in international crude prices and their impact on the domestic prices of these commodities, it was not implemented.

The Kelkar task force on indirect tax has also suggested that while customs duty on crude should be brought down from 10 to 8 per cent, there should be a periodical review of excise duties on the sector by the two concerned departments.