Domestic natural gas users to be burdened with higher price

An inter-ministerial panel on gas pricing, which met today, agreed on the need to charge more from users of domestic natural gas so that imported liquefied natural gas (LNG) can be made affordable. However, the power ministry wants more discussion on the rationale to average out or pool price of costlier imported LNG with cheaper domestic gas

New Delhi: An inter-ministerial panel today agreed on the need to charge more from users of domestic natural gas so that imported liquefied natural gas (LNG) can be made affordable, reports PTI.

The inter-ministerial committee, headed by Planning Commission advisor (energy) Sunanda Sharma, today held it first meeting on subsidising costlier imported LNG by making consumers of cheaper domestic natural gas pay more.

"The meet discussed the need for such a move and all except the representative of power ministry agreed on the need," a source privy to the deliberations said.

The power ministry wanted more discussion on the rationale to average out or pool price of costlier imported LNG with cheaper domestic gas, the source said.

More deliberations will follow and various sub-groups on working out modalities, tax implications, etc, will be formed.

The panel was constituted after Petronet LNG, India's largest liquefied natural gas importer, contracted LNG from Australia at a price that is four times the rate at which most of the natural gas produced from domestic field is sold.

Australian LNG, which is to be imported at Petronet's under construction Kochi terminal in Kerala from 2014, is indexed at 14.5% of crude oil price-the loading price at Australian port will be $14.5 per million British thermal unit (mmBtu) at $100 a barrel oil price.

After adding $1-$1.2 per mmBtu towards cost of shipping, the gas in its liquid form in cryogenic ships to Kochi, 5% customs duty ($0.77 per mmBtu) and cost of converting the LNG into its gaseous state, the gas ex-Kochi will cost about $17 per mmBtu.

This compares to $4.2 per mmBtu price of majority of gas, the source said, adding the panel will suggest how these two prices can be pooled or averaged out to make the gas affordable to power and fertiliser units in Kerala.

However, the constitution of the committee has come in for questioning by some quarters, who say inclusion of officials of Petronet, a private company, and state-owned gas utility GAIL are a conflict of interest.

Petronet and GAIL, which is a promoter of Petronet and principal marketer of the Australian LNG, are naturally inclined towards price pooling.

Instead, upstream regulator Director General of Hydrocarbons (DGH), they say, should have been co-opted as member of the committee so as to detail the implication and complication of such proposal on contracts of the fields awarded under New Exploration Licensing Policy.

The inter-ministerial panel includes representatives of power, fertiliser, finance and oil ministries, GAIL India chairman, Petronet CEO, Petroleum and Natural Gas Regulatory Board secretary and Oil & Natural Gas Corporation (ONGC) director finance.

Previously, GAIL had commissioned a study by Spanish consultant Mercados on the feasibility of pooling of over a dozen different rates at which natural gas produced from different fields in the country is sold.

The price for domestic natural gas ranges from $2.71 to $5.73 per mmBtu, LNG imported from Qatar on long-term contract is currently imported at $6.92 per mmBtu and from spot market at $8.50-$9.50 per mmBtu.

Sources said the terms of reference (ToR) of the committee have been tweaked to omit the previously indicated objective of rationale for pooling of gas.

The ToR in the present form pre-suppose that the decision of a pooled price has already been taken and that the committee was only to devise pool operating guidelines, without even evaluating the various options.

Mercados had suggested separate pools for fertiliser and power sector and involved several complex inter-ministerial issues.

The Inter-Ministerial Committee will formulate a policy for pooling of natural gas prices and devise pool operating guidelines to make the policy operational.

Petronet LNG, India's largest importer of liquefied natural gas, has contracted 1.5 million tonnes a year of LNG from Australia for delivery at its under-construction Kochi terminal in Kerala from 2014-end.

The natural gas produced by state-owned ONGC and Reliance Industries, which together account for over 80% of gas in the country, is priced at $4.2 per mmBtu.


No venture fund has approached IT department for tax exemption

An RTI query recently, alerted the IT department to the strange fact that no venture fund, which can get tax exemption for earnings, has approached the department for tax clearance

The Income-Tax Department is initiating an investigation to check if venture capital funds (VCF), regulated by the market watchdog, Securities and Exchange Board of India (SEBI), have complied with income-tax regulations mandatory under the law to be able to claim tax exemption as VCFs. I-T department sources have confirmed to Moneylife that an investigation is underway to determine why VCFs have not registered with the IT department.

The IT department was alerted to this issue when a Right to Information (RTI) application was filed, seeking the number of VCFs which have been cleared by the IT department. Surprisingly, while replying to the RTI query, the department discovered that no VCF had sought its clearance so far.

Currently, for the purpose of tax exemption, VCFs have to comply with the income-tax rules under Section 10 (23FA) of the Income-Tax (I-T) Act. Section 10 (23FB) of the I-T Act provides tax exemption for "income from investment in venture capital undertaking."

But it is only after the RTI query that the I-T department woke up and started an investigation into why VCFs registered in India have not taken permission from the tax authorities.

As per the information available on SEBI's website, there are as many as 180 registered venture capital funds and 154 registered foreign venture capital funds in India. At present, venture capital activity in India comes under the purview of different sets of regulations.

The SEBI (Venture Capital Funds) Regulation, 1996, lays down the overall regulatory framework for registration and operations of venture capital funds in India. Overseas venture capital investments are subject to the Government of India Guidelines for Overseas Venture Capital Investment in India dated 20 September 1995.

For tax exemption purposes, venture capital funds also need to comply with Income-Tax Rules under Section 10(23FA) of the Income-Tax Act. However, no venture firm has approached the IT department, according to a senior IT official.


Experts suspect “misery tax” could return through GST door

Medical fraternity happy over rollback of service tax on healthcare, but thinks it could be introduced in another form next year

Finance minister Pranab Mukherjee on Tuesday announced a rollback of the proposed 5% service tax on healthcare that was opposed by the medical fraternity who chose to call it the "misery tax". But experts feel that this may be a temporary respite and that the "sword of the service tax on healthcare" will continue to hang, and could well come back in the form of Goods and Service Tax (GST), expected to be implemented next year.

Deepak Samant, director finance, D Hinduja National Hospital and Medical Research Centre, told Moneylife, "The government has withdrawn the service tax only till the GST is rolled out next year. In all probability, it is likely to slap the tax in the form of GST next year. The government, which is already besieged by many scams and is facing elections in many states, probably does not want another controversy at this time. It could possibly be a temporary retreat. We should not prematurely rejoice."

Rolling back the service tax, Mr Mukherjee said, "The proposed levy on healthcare has raised considerable anxiety in this House and outside. The purpose of the levy was not merely to mobilise revenue. It was to pave the way for the introduction of the Goods and Service Tax (GST). However, I have decided to exempt the new levy in its entirety, both in respect of services provided by hospitals as well as by way of diagnostic tests, until GST comes into force."

The service tax on healthcare, which was proposed in the Union Budget, suffered a backlash, with protests against the extra charge, given the escalating cost of healthcare.

Mumbai-based social activist and chartered account Nagesh Kini said, "The finance minister has not ruled out levying the tax by another name like GST, as and when it comes through. The GST Bill, it must be remembered, has been swinging back and forth in the face of opposition by non-Congress ruled states. This is a classic case of the left hand taking away what the right hand giveth!"

Dr Devi Prasad Shetty, chairman of Narayana Hrudayalaya, who had coined the term "misery tax", said the rollback was a relief to the common man.

Medical experts stress that the government should give emphasis on building affordable healthcare facilities. They suggest that public-private partnership (PPP) could be one way of taking affordable healthcare to the public at large.

Dr Rekha Bhatkhande, dean of Mumbai-based Shushrusha Hospital, a citizen's co-operative hospital, told Moneylife, "I feel the government is in the process of finding out the best solution for people."

On the subject of affordable medical facilities, Dr Bhatkhande said, "Like PPP, co-operative hospitals could be a third arm to provide affordable medical facilities for all. In the future, it will help us to reach more number of people."

Mr Samant felt that all types of healthcare services should be permanently put on the negative list, once GST is implemented. "Industry bigwigs and social activists should start building public opinion to necessarily include all types of healthcare services (whether covered by insurance or not) in the 'negative' list of services under GST regime on a permanent basis."

When presenting the Union Budget for 2011-12, the finance minister had proposed a 5% service tax on medical services, including diagnostics, provided at centrally air-conditioned clinical establishments, with more than 25 beds for in-patient treatment. The service tax was to be levied also on services provided by consultant doctors operating from such hospitals.




6 years ago

Sir,ref my earlier comments on roll back of service tax which has been done,I am confident that the good sense will prevail on FM and there should be no service tax on hospitalise.Gov is total failure on health and education issues,rathan than Govt must give an incentives to the aforedsaid servives providers.

Rajiv Chawla

6 years ago

With withdrawal of proposed 5% service tax on, even though Hospital Managements may feel elated as of now, they are the net loser. As any business entity covered under VAT or Central Excise or Service Tax would understand, the coverage enables us to recover the Taxes that we pay on our inputs. Each individual or business whether covered under Service Tax/Excise/VAT or not, pays Taxes on inputs (including Tel Bills, Internet, Courier, Transportation, Services, Consultancy, Professional fee, RM etc). So do Hospitals. Infact, Hospitals pay Excise Duties & VAT on many Medicines, Medical Equipments etc. All these taxes that they are paying even now, could be adjusted as CENVAT. The net effect of unabsorbed Taxes or value addition would have hardly been 1.5%. If a hospital is buying Input Services & Goods worth even Rs.1 crore pa (that's bare minimal) they are paying Rs.10.3 lac as Taxes. This could come back through CENVAT. So, 10.3% of input costs on Tax Paid Services & Goods could be reduced. The purpose of Service Tax on healthcare was not to mobilise revenue, but to pave the way for introduction of the GST which is further simplification of adjustment of Taxes on inputs. Good opportunity lost by Hospitals which could easily save more. Managements could even pass on this benefit to patients. And if anyone thinks there's huge paperwork involved, its not true either, in fact, much less than TDS, where every Assessee works for the Govt. free of cost by collecting Taxes & depositing on on behalf of the Govt. and pays huge penalties for mistakes if any. While compliance of Service Tax helps save revenue through CENVAT. The Govt. is not losing any revenue by removing this Service Tax on Hospitals. Rather, Hospital Managements lost this opportunity to avail of CENVAT benefits and prepare for next year's GST. Not surpising though that due to sheer ignorance, it was termed as "misery tax". I would rather term it as "Recovery of Input Tax".

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