Various duties of excise on petrol and diesel remains unchanged for the oil and gas industry.
None of the demands of the industry were met
Budget provisions
The following announcements have been proposed in the Union budget 2015-16:
The Schedule Rates of the Additional Duty of Excise (commonly known as Road Cess) levied on Petrol is being increased from Rs 2 per litre to Rs 8 per litre.
The effective rates of the Additional Duty of Excise (commonly known as Road Cess) levied on High Speed Diesel Oil is being increased from Rs 2 per litre to Rs 6 per litre only.
Education Cess and Secondary and Higher Education Cess, presently applicable to petroleum products, including petrol and High Speed Diesel, are being exempted.
Rates of duty of excise (CENVAT) on Petrol and High Speed Diesel Oil (both branded and unbranded) are also being revised
Thus, the total incidence of various duties of excise on petrol and diesel remains unchanged
Budget 2015: Complete Coverage
Other provisions
Reduce corporate tax from 30% to 25% over the next four years, starting from next financial year.
Education cess and the Secondary and Higher education cess is proposed to be subsumed in central excise duty. The general rate of central excise duty of 12.36% including the cesses will be rounded off to 12.5%.
The Education Cess and Secondary and Higher Education Cess shall be subsumed in the revised rate of Service Tax. Thus, effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%
Industry Expectations – Not fulfilled
Oil & Gas exploration & allied services
Government should clarify that for the availability of tax holiday, the definition of 'mineral oil' includes natural gas retrospectively irrespective of the NELP round and that the benefit would also be available to Coal Bed Methane
Extend the benefit under section 80-IB(9) of the Income Tax Act from 7 years to 10 years to companies engaged in production of mineral oil and natural gas. It may further be provided that benefit under section 80-IB(9) of the act shall not be restricted only to blocks licensed under a contract awarded till March 31, 2011 and the period March 31, 2011 be extended till March 31, 2017.
Definition of infrastructure sector in the explanation to Section 80-IA of the Income Tax Act should be amended to include exploration and refining activities. Accordingly, exploration and refining undertaking may be allowed deduction for 10 consecutive assessment years as against 7 years at present out of 15 years period.
Scheme for refund of service tax paid by E&P companies on the services consumed for exploration and production purposes.
It should be explicitly provided that the premium paid to acquire any Exploration and Production asset abroad is intangible asset eligible for depreciation under section 32 of the Act @ 25%
Oil exploration and production companies should be exempted from the purview of MAT to promote the domestic exploration and production. This will reduce import dependence of the nation
Petroleum Products
Definition of infrastructure sector in the explanation to Section 80-IA of the Income Tax Act should be amended to include exploration and refining activities.
Accordingly, exploration and refining undertaking may be allowed deduction for 10 consecutive assessment years as against 7 years at present out of 15 years period.
Expects removal of National Calamity Contingent Duty on crude oil levied at Rs 50 per MT
Expect zero custom duty on imported equipments, machinery and other material required for substantial expansion of refining capacity.
Expect specific rate of duty to be introduced for ATF in place of ad valorem rate of excise duty.
Expect ATF should be given a declared goods status whereby sales tax on ATF could be fixed a ceiling of 5%.
The excise duty concession may be enhanced from 50% to 100% for the long-term sustenance and viability of the North East refineries
Natural Gas Storage, Distribution & Supply
Expects to grant exemption from payment of custom duty on import of LNG across all users of LNG aligning it with crude petroleum
Expect nil custom duty on import of materials viz. pipes; valves; flanges; data communication system for laying the petroleum products and gas pipelines
LNG facility at port location should be given infrastructure status for the purpose of 10-year tax holiday under section 80-IA
Include Natural gas and LNG as declared goods on which sales tax of more than 5% cannot be levied in any state irrespective of where the product is sold.
A weighted deduction of 150% in respect of capital expenditure incurred should be allowed to specified business of laying and operating a cross country natural gas/ crude/ petroleum oil pipeline network for distribution. Currently weighted deduction is 100%.
Budget impact
Budget 2015: Complete Coverage
No direct impact on Oil and gas exploration and allied services
Stocks to watch
Reliance Industries, ONGC, Cairn India, Oil India, Indian oil, BPCL, HPCL, GAIL, Gujarat Gas Company, Indraprastha Gas, Gujarat state Petronet
Outlook
Union Budget 2015-16 did not address any of the industry genuine expectations. Oil Industry had expected to remove basic custom duty on imported natural gas, currently at 5% as it is an inverted duty.
There is shortage of domestic natural gas and imported natural gas is very expensive, thus putting additional burden on us.
Also, with petro products out of the ambit of GST currently, Industry wanted the government to reduce CST to 1% from 2%, in line with the proposed Constitutional Amendment bill on GST, before eventually making it zero with bringing the petro products under GST.
Here too, refiners bear this burden which is neither reimbursed by the customer not is recoverable or can be offset.
Government has also not provided relief to E&P companies for their demand of service tax credit.
Service tax drains away a substantial part of fund and since crude oil and natural gas produced are not liable to excise duties, companies cannot take CENVAT credit of service tax incurred for exploration and production.
Oil Industry had hoped that the government would formulate a scheme for refund of service tax paid by E&P companies or services provided to E&P companies may be “Zero rated”, so that there is no stranding of taxes at the hands of service providers.
Budget 2015: Complete Coverage
