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Power and oil sectors await incentives

The power sector, geared up to attain a capacity addition of 78,577 mw during the 11th Plan period, is eagerly awaiting a cut in excise duty on power equipment and other inputs from 16% now to 8% in the upcoming Budget.

The power sector, geared up to attain a capacity addition of 78,577 mw during the 11th Plan period, is eagerly awaiting a cut in excise duty on power equipment and other inputs from 16% now to 8% in the upcoming Budget.

The other incentives that might give the sector a high voltage boost are an extension of the deadline for a tax holiday for companies setting up ultra mega power projects (UMPPs) by seven years to 2017 from 2010 and exemption of power distribution franchisees from service tax.

On the other hand, the oil and gas sector is expecting withdrawal of 12% service tax imposed on exploration and production (E&P) work, cut in customs duty on crude and products to 2.5% from 5% and removal of ad valorem excise duties and reduction in specific excise duty rates.

According to the sources, Chidambaram, who did not provide any major sops in the last year?s Budget, may provide incentives to boost the government?s ambitious capacity addition programme. The sector hopes that the government may restore the pass-through status for venture capital funds operating in the sector.

?The restoration of pass-through status would make power sector VC funds eligible for exemption in income tax by way of dividend and capital gains accruing to the fund company. This could result in the presence of more international VCs in the sector,? said Kushal Sampat, COO, Dun & Bradstreet. As far as the oil and gas sector is concerned, the industry is of the view that the removal of 12% service tax imposed on exploration and production (E&P) work could result in a better response to the NELP-VII especially as oil exploration is a risky business and E&P companies do not want to pay tax on something that could possibly turn out to be un-remunerative.

The industry has sought the option of claiming a 10-year tax holiday, starting from the year they begin earning profits. Alternatively, they have sought for an amendment in provisions such that the companies can choose any seven consecutive year in which deduction can be claimed out of the first 15 years beginning from the year of production.

The industry also expects the finance ministry to reduce customs duty on naphtha and liquefied natural gas, bio fuels and bio diesel and also a cut in import duty on all kinds of fuels from 10% to 1%.

?Oil companies are suffering revenue losses due to increasing international crude prices. While the last year?s Budget was largely positive for the sector, it introduced a service tax on oil exploration and production, which is having a negative impact on the much-needed foreign investment in this area,? Sampat said.

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First published on: 26-02-2008 at 23:28 IST
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