Natural gas: Industry expectations not fulfilled

Budget provisions

The following changes in the duties have been proposed in the Union budget 2010-11:

• Decision on Kirti Parikh recommendations will be taken in due course
• Weighted deduction on expenditure incurred on in-house R&D enhanced from 150% to 200%.
• Also weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research increased from 125% to 175%
• Minimum Alternate Tax (MAT) to be increased to 18% of book profits from 15%.
• Reduction in surcharge on corporate tax from 10% to 7.5% for domestic companies.
• The rate of service tax of 10% applicable since 24.02.2009 has been continued

Industry expectations - not fulfilled

• Natural gas to be in the list of declared goods - Not fulfilled
• Clarity on tax breaks under Sec 80-IB on Natural gas produced under NELP I-VIII. Currently tax breaks are provided for gas produced only under NELP VIII - Not fullfilled
• Customs duty on LNG to be made nil from 5% - Not fullfilled
• Increase in APM gas price - Not fulfilled

Budget impact

No direct impact on natural gas sector

Stocks to watch

Gujarat Gas Company, Indraprastha Gas, Gujarat state Petronet, RIL, OIL, ONGC

Outlook

Industry has expected clarity on tax breaks under Sec 80-IB on Natural gas produced under NELP I-VIII. Currently tax breaks are provided for gas produced only under NELP VIII. However confusion still persists. Overall Union Budget 2010-11 maintained status quo for the Natural gas sector. Marginal reduction in the effective corporate tax was the only benefit.