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Oil tax cut likely as crude prices rise

By The Nation

To curb increases in the cost of living, officials say it is inevitable the government will undertake an oil tax cut as crude oil prices continue to rise - while the Oil Fund drops to below Bt10 billion.

Prime Minister Abhisit Vejjajiva will chair an urgent meeting with Finance Minister Korn Chatikavanij and Energy Minister Wannarat Charnnukul today to discuss the retail prices of fuel.

Finance Minister Korn said yesterday the government might cut the oil tax from Bt5 to Bt3.10 per litre, as the government wants to lessen the public's cost of living. "The tax rate may be cut to previous rates," he said.

"A tax cut will be the government's final solution to curb inflation as the oil fund has now nearly run out," a source at the Finance Ministry said.

When former prime minister Samak Sundravej was in office, an oil tax of Bt3.10 per litre was imposed. However, the tax was adjusted to Bt5 by Prime Minister Abhisit's administration as the oil price was quoted at between US$60-70 per barrel. In London, Brent crude was quoted at US$123.45 per barrel last week.

Currently the government provides subsidy to diesel consumers via the Oil Fund, containing the price at Bt30 per litre. The fund is expected to be depleted by the end of this month.

Life after the oil fund

Officials at the Excise Department estimate tax cuts of Bt1 per litre would cause Bt20 billion in revenue losses. As a result, the government may have to cut down planned expenditure in order to maintain a small budget deficit. The government raised the oil tax when crude oil prices were lower, which contributed to government revenue.

Abhisit yesterday accepted that the Oil Fund had nearly run out and the government was unable to further subsidise the diesel price any longer.

The Oil Fund is reported to be below Bt10 billion now and it can subsidise diesel only through to the end of the month.

"The meeting will consider ways that will not push up both transportation and manufacturing costs as we cannot rely on the fund subsidy any longer," Abhisit stressed, adding that the world oil price is fluctuating on a rising trend.

Previously, the government adjusted the excise tax on diesel but now the high curve in inflation is a greater challenge. He pointed out that the government would focus on a solution that would not unduly affect the Kingdom's monetary policy and people's living standards.

-- The Nation 2011-04-18