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Budget 2012-13: Oil ministry seeks tax sops for natural gas

The Jaipal Reddy-led ministry has asked the finance ministry to waive the customs duty and slash sales tax levies on natural gas as it is a green fuel being sold to priority sectors.

S.P.S. Pannu   New Delhi     Last Updated: January 23, 2012  | 14:43 IST

The petroleum ministry has requested the finance ministry to waive the customs duty and slash sales tax levies on natural gas in the forthcoming Budget as it is a green fuel being sold to priority sectors, such as transport, domestic kitchens, power plants and fertiliser units.

A 5 per cent customs duty is charged on the import of liquefied natural gas (LNG), which has to be passed on to consumers who are mainly in the power and fertiliser sectors that has to be subsidised by the government, the petroleum ministry has pointed out.

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It has recommended that natural gas should be treated on the same footing as crude oil for which the customs duty was reduced to nil in June last year.

According to the petroleum ministry's recommendations, natural gas should be given preference over crude as it is a cleaner fuel. The duty on natural gas, therefore, should not be higher than crude oil as is the case at present.

It has argued that the nil duty on crude oil should be extended to imported natural gas as it is a green fuel and also used in subsidised and priority sectors.

The petroleum ministry has also strongly recommended that natural gas should be put in the "declared goods" category like domestic LPG and crude oil so that state governments cannot levy more than five per cent sales tax on the product.

CHARTING THE GREEN COURSE
  • Wants customs duty on natural gas to be cut to nil as was done for crude oil in June 2011
  • Natural gas should be given preference over crude as it is a green fuel and is used in subsidised and priority sectors
  • Wants LNG to be put in declared goods segment so states can't levy more than 5% sales tax
  • Any incentive to increase natural gas sales will result in a huge saving in govt's subsidy bill
  • Will also cut subsidy burden on oil firms like ONGC & OIL and GAIL
  • Will enable oil firms to develop smaller gas fields
  • Encouraging use of natural gas for running vehicles will reduce emissions
Currently, the tax levied by state governments such as those of Maharashtra and Gujarat is as high as 12.5 per cent, while in Assam it is a phenomenal 40 per cent.

Natural gas is used as a transport fuel and has the potential of replacing petrol and diesel to a significant extent in the bigger cities. Piped natural gas is also supplied as a cooking fuel to domestic kitchens in the metros and is a substitute for LPG and kerosene.

Since diesel, LPG and kerosene are highly subsidised fuels any incentive to increase the sales of natural gas is expected to result in a huge saving in the government's subsidy bill.

It will also reduce the subsidy burden on the oil companies and GAIL so that they are left with more resources for carrying out oil exploration and production, the oil ministry has stated.

It has also stated that lowering of local taxes will enable oil companies, such as Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL), to develop smaller gas fields, which are currently considered high- cost as the price realisation is low.

Encouraging the use of natural gas for running vehicles sector is expected to significantly reduce pollution as the emission levels on the fuel are lower than even the Bharat Stage- V, which are scheduled be introduced in the future. Currently, Bharat Stage-IV emission norms for vehicles have been introduced in the metro cities.

The petroleum ministry has argued that LPG was granted declared goods status to qualify for five per cent sales tax in 2006 to reduce the subsidy burden.

So, the same logic should be extended to natural gas as well since it is a substitute for LPG. Similarly, coal has been granted concessional sales tax under the declared goods category since it is used as a fuel in power plants. Since 40 per cent of natural gas is also used for the same purpose it also merits the same treatment, the petroleum ministry has added.

Courtesy: Mail Today

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