Oil industry’s Budget 2018 wish list: Less cess, more royalty, customs duty tweak

Cut in oil cess, rise in royalty proportionate to coal bed methane (CBM) output, waiver of customs duties on capital goods for new refineries and exemption of excise duty on CNG are some of the key measures the oil industry wants the government to include in its budget proposals this year.

“This budget, we expect the cess ad valorem rate to come down from 20% to 8%, while seeking clarity on GST in royalty, cost recovery, cash call and profit petroleum,” said Sudhir Mathur, CEO of Vedanta Cairn Oil n Gas. “Another pressing demand is to bring price parity between domestic crude and imports by cutting the 2% CST on domestic production, to further enhance the country’s energy security,” he added.

Cess is applicable on a large share of the country’s crude output, although not all, mainly affecting profitability of ONGC, Oil India and Vedanta.

Essar Oil, which operates a CBM field in West Bengal, has demanded an arrangement by which royalty rate rises with increase in production volume in CBM fields. “Since it requires a very high front-end investment and massive surface facilities, we would suggest reverse benefits by adjustment of investments from royalty or taxes payable by suitable deductions over the initial ten-year production,” said Vilas Tawde, CEO of Essar Oil and Gas Exploration and Production Ltd.

“Zero customs duty should be introduced for the capital goods imported for the new refineries as was extended to RPL Refinery, instead of the current rate of duty of 21.5% so as to provide a level playing field to the new refineries of the PSUs,” Industry body Ficci has said. “It is also suggested that the Customs duty on import of material viz. pipes, valves, flanges, data communication system for laying of petroleum products and gas pipelines is made nil.”

Indian Oil, Bharat Petroleum and Hindustan Petroleum are together building a 60 million tonne greenfield refinery on the West Coast in Maharashtra. HPCL is developing another greenfield capacity in Rajasthan.

The industry has demanded that the exemption of customs duty on import of liquefied natural gas (LNG) for the power sector should now be extended to all other sectors. “Since customs duty on crude oil has already been made zero, import of LNG presently attracts Basic Customs Duty of 2.575 % ad valorem which adds to the cost of supply to end-users,” the industry body has said.

Ficci has also sought exemption from any taxing provision for lending or borrowing of in-tank LNG at terminal to enable optimum utilisation of LNG terminal facilities in the country to help avoid a situation where LNG available in tank can’t be supplied to willing customers at the gate due to apprehension of stretched application of laws on right to use goods or barter.

Another demand from gas companies is for exemption of excise duty for compression of natural gas into compressed natural gas (CNG). “Conversion of natural gas to compressed form is only for the purpose of transportation and should not be considered as manufacturing, thus excise duty should be exempted on CNG,” the industry body has said.


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