LNG policy proposes 4% sales tax across India

Vol 6, PW 21 (18 Dec 02) People & Policy

EXAMINE THE FINE print of the new Integrated LNG Policy and you'll see one of the most industry-friendly documents ever to emerge from Shastri Bhawan.

It wasn't easy. Months of inter-ministry wrangling preceded the formulation of this policy: the Ministry of Finance and the Planning Commission objected strongly to any move hinting of tax breaks or fiscal concessions.

Victory, however, came to the oil ministry. "We have suggested that special incentives be given to all LNG ventures till 2010," we learn.

"These will promote widespread use of LNG." Below is a summary of the main recommendations contained in the new LNG policy: A reduction on LNG import tariffs from 5% to zero LNG import terminals should be categorised as Infrastructure Facility under the Income Tax Act to bring them in line with power generation and transmission projects - a move that will allow them to benefit from similar tax holidays Reduction in import tariff from 25% to zero on construction equipment and capital goods used in the construction of LNG terminals and regassification facilities. [Shastri Bhawan believes this move will bring down construction costs significantly and will indirectly benefit the biggest LNG users in the power and fertiliser sectors.

Import of capital goods for 'Mega Power Projects' already attracts zero tariff] Introduction of a uniform, national sales tax of 4% on LNG initially for a period of seven years in place of the multitude of state sales taxes ranging from a high of 22% in Gujarat to a low of 4% in Madhya Pradesh. [Shastri Bhawan concedes that non-uniform taxation across states will make LNG non-viable.

It wants to categorise LNG as a 'Good of National Importance' under the Central Sales Tax Act so that the sales tax rate can be frozen at 4%. According to a source, this issue can be reviewed later when the LNG market is firmly established]