IndIa: Tax break for refineries

NEW DELHI, Dec. 29 (UPI) -- India's Petroleum Ministry says it has proposed zero customs duty on capital goods imported for new refineries and their expansions.

Bowing to repeated demands of state-run refiners, the Petroleum and Natural Gas Ministry has proposed to the government zero customs duty on capital goods imported for new refineries, refinery expansions and green fuel projects mandated under auto fuel policy, The Hindustan Times newspaper reported Friday.

The demand gained momentum as 92 million metric tons of new refining capacity is expected to be added during 2007-12 with government-controlled oil companies planning new refineries at the northern province of Punjab, Bina in the central province of Madhya Pradesh and Paradeep in south-central province of Orissa, a local media report said.

"With tariff protection at its lowest, customs duty on project imports for new refineries may structurally increase the cost of refining for the new projects," a ministry spokesman said.

He said refineries need to be cost-effective as most of the production will be exported.

"It is essential that taxes do not inflate project costs," the ministry has said in its wish list given to the finance ministry for next year's budget.

Explaining the rationale behind its demand, the ministry pointed out that to serve overseas product requirement, refineries need to produce high specification fuels.

"Moreover, investments in refineries for fuel quality upgrade are mandated under auto policy. These investments generate negligible economic returns for the refineries and are being made due to statutory obligations," the ministry said in its submission.