CapitalMarket.com - Oil drilling and Allied Services: Bestow infrastructure status & remove NCCD on crude oil
Pre Budget 2012-13 Tuesday, March 13, 2012 12:22 Hrs IST
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PRE BUDGET REPORTS

Oil drilling and Allied Services: Bestow infrastructure status & remove NCCD on crude oil

Current status

The Indian basket of crude oil prices has increased to USD 122.74 per barrel at the end of February 2012 compared to USD 110.47 in January 2012 and USD 101.62 per barrel in February 2012 mainly due to tensions surrounding Iran.

EIA expects the price of West Texas Intermediate (WTI) crude oil to average about $100 per barrel in 2012, almost $6 per barrel higher than the average price last year. Based on recent futures and options data, the market believes there is about a one in fifteen chance that the average WTI price in June 2012 will exceed $125 per barrel, and about a one in fifty chance that it would exceed $140 per barrel. For 2013, EIA expects WTI prices to continue to rise, reaching $106 per barrel in the fourth quarter of next year

Duty Structure

Crude oil as well as Natural gas produced under NELP contracts is not liable to duties of Excise under the Central Excise Act, 1944. However Rs 2500 per tonne is being charged as cess and Rs 50 per tonne as National calamity contingent duty (NCCD). Regards Custom duty it is nil. However it attracts Rs 50 per tonne as NCCD.

Industry Expectation

  • Expects extension of infrastructure status to exploration and refining activities for the purpose of 10-year tax holiday under Section 80-IA of the IT Act. Till now an undertaking, which begins commercial production of the mineral oil, is allowed a deduction of 100% of the profits for seven consecutive assessment years. It is suggested that exploration and refining undertaking should be allowed deduction for 10 consecutive assessment years as against 7 years at present out of 15 years period
  • Exemption from Minimum Alternative Tax (MAT) for Hydrocarbon sector
  • Exempt Oil Industry from the applicability of Sections 234 B & 234C of the Income Tax Act, 1961 or at least a wider approximation factor be allowed for recovering interest on short payment of Advance Tax. PSU Oil Companies are not able to derive the Advance Tax liability in advance leading to payment of interest u/s 234B and 234C and lodging of petitions for waiver after the assessments.
  • Expects removal of National Calamity Contingent Duty on crude oil levied at Rs 50 per MT
  • Expects exemptions from payment of service tax on input services used in petroleum operations
  • Petroleum Sector seeks full coverage of crude, MS, HSD, ATF & Natural Gas under GST
  • Expects refund of service tax paid by E&P companies on the services consumed for exploration as well as production process.

Analysts/market expectations

Crude oil is trading at a very high price which itself makes O&G exploration activity attractive for players. Hence, GOI may not give incentive this time.

Stock to watch

ONGC, RIL, Cairn India, Oil India

Outlook

Crude oil prices has remained higher in last one year due to a stronger than expected increase in demand along with supply side issues arising from unplanned outages from OPEC and the unrest in MENA (Libya, Nigeria). India imports almost three fourth of its crude oil requirement. Higher international crude oil prices situation is further aggravated by depreciation of rupee. Fuel prices (diesel, PDS kerosene and Domestic LPG) are decided by government of India. As a result OMC are currently incurring daily under recovery of Rs 474 crore on sale of diesel, kerosene and LPG. Diesel under recovery is Rs 12.17, PDS kerosene is Rs 28.66 and Domestic LPG is Rs 439. Upstream companies have to bear a portion of under recoveries of OMCs thus impacting their profitability. Industry expects clarity on subsidy sharing mechanism of under recoveries; However Budget may not be a platform for the same.

Others
4  Food Processing: Retain option to pay excise duty at 1% without Cenvat Credit
4  Real Estate: Double limit on interest on home loan for self occupied property to Rs 3.0 lakh p.a.
4  Stock brokers: Abolish Security Transaction tax
4  Pesticides and Agrochemicals: Cut Excise duty on Pesticides to 4%
4  Tractor: Remove excise duty on tractor parts produced in one plant & used in other plant
4  Power: Remove customs duty on coal
4  Tea: Introduce concession import tariff for specific Tea Machines
4  Consumer Durables: Hike abatement on MRP based excise duty on home appliances to 45%
4  Medical Equipments: Exempt excise duty on Endovascular stents
4  Cigarettes: Amend the existing excise slab of filter Cigarettes
4  Secondary Copper Producers: Remove customs duty on copper Scrap
4  Government Fisc: Fiscal deficit for FY2013 may be pegged at 5.2%
4  Aluminum: Cut customs duty on coal tar pitch
4  Auto Components: TUDS for auto component industry is the need of the hour
4  Indian Railways: Passenger fares also set to rise
4  Gem and Jewellery: Remove customs duty on worked coral, and excise duty on branded jewellery
4  Coffee: Cut import duty to 5% on coffee equipments
4  Steel: Increase customs duty on steel, and remove them on coking coal
4  Natural Gas: Bestow Declared goods status, remove customs duty on LNG / Natural gas
4  Cement: Opt for specific or advalorem excise duty but not both, and cut excise incidence
4  Textiles: Cut excise duty on MMF, and increase TUFS allocation
4  Oil drilling and Allied Services: Bestow infrastructure status & remove NCCD on crude oil
4  Two & Three Wheeler: Retain excise duties at 10%
4  Paints: Cut customs duty on Tio2 from 10% to 7.5%
4  Commercial Vehicle: Remove additional tax of Rs 10,000 on chassis fitted with engines on vehicles transporting over 13 people
4  Sugar: Decontrol, with removal of 10% levy obligation
4  Fertilizer: Hike Urea prices and bring it under Nutrient Based Subsidy Scheme
4  Alloy Steel: Hike customs duty on output, and remove them on inputs
4  Glass and Glass Products: Abolish customs duty on Soda Ash
4  Bank Fixed Deposits: Reduce Duration of Bank Tax Saving FDs to 3 Years
4  Media: Give required push to digitalization
4  Solvent Extraction: Raise the import duty on RBD Palmolein to at least 16.5%
4  Leather & Leather Products: Cut excise duty on footwear to 0% & on leather goods to 5%
4  Textile Machinery: Remove TUFS benefit for imported second-hand textile machinery
4  Man Made Fibres; If excise duty on MMF is cut, ensure corresponding reduction on inputs too
4  Passenger Vehicle: Reduce the excise duty and remove additional tax on large cars
4  Mutual Funds: Include ELSS as an eligible tax saving instrument under DTC
4  Retail: Allow FDI in multi brand retail
4  Education: Increase budget allocation for education, and grant infrastructure Status
4  Hotels: Provide infrastructure status
4  FMCG: Implement Direct Tax Code, and pave way for GST implementation
4  Telecom: Finalize 2G spectrum bidding process, clarify on the spectrum prices
4  Ready Made Garments: Remove 10% Excise Duty on Branded Garments
4  Dyes and pigments: Retain customs duty on dyestuffs at current levels
4  Chemicals: Remove Customs Duty on Liquefied Natural Gas and Naphtha
4  Insurance: Increase FDI ceiling to 49%.
4  Computer – Software: Extend tax benefit under STPI
4  Ferro Alloys: Hike customs duty on Ferro alloys, and remove them on inputs
4  Chlor Alkali: implement GST at the earliest
4  Refineries; Ensure full coverage of crude, MS, HSD, ATF & Natural Gas under GST
4  Power plant Equipments: Levy customs duty on mega and UMPP project imports
4  Motor Starters: Cut excise duty for agriculture use to 5%
4  Pharma: Remove anomaly of higher excise duty on APIs than formulations
4  Paper: Increase customs duty on paper and remove customs duty on coal
4  Tyres: Allow duty free import of 1 lakh tonne of natural rubber