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Union Budget 2012-13: Oil & Gas Sector Seeks Elimination of 5% Import Tax on LNG

  • The oil & gas sector is seeking elimination of five percent import tax for liquefied natural gas (LNG) imports, a move that would cut power generation and fertiliser production costs. Global oil prices have surged as much as 13 percent since the last budget, increasing the revenue losses of state-run retailers that sell at below market rates.

  • Refiners want a waiver of a withholding tax which could be as high as 40 percent on payments made in rupees for Iranian oil. The government wants payments for Iranian imports to be made in rupees but so far the mechanism has not taken off, partly because of the tax issue.

  • Domestic prices of diesel, cooking gas and kerosene are still heavily subsidised by the government and the budget could take steps to cut the financial burden. The government could increase prices of these subsidised fuels or announce enhanced subsidy support for state-run fuel retailers, who are expected to incur a revenue loss of 1.4 trillion rupees ($28 billion) in the current fiscal year on subsidised sales. One option could be to fix a per litre subsidy for diesel sales, as favoured by a finance ministry report on Thursday, to curb demand for the fuel in case global prices rise and to specify the government's annual subsidy share in advance.

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