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Creation of concept not liable to sales tax
May, 31st 2008

The finance ministry is planning to accord declared goods status to a range of petroleum products, namely natural gas, liquefied natural gas (LNG), biofuels and biodiesel.

The tag would pave way for having a uniform 4% sales tax on these products across the country. Currently, sales tax rates on these commodities vary from state to state and in certain cases goes up to 22%.

The finance ministry is considering the proposal and has asked the petroleum ministry to furnish details of estimated revenue loss by the move, an official said. It is expected that a decision in regard would be announced in the Budget 2008. The government had already brought liquefied petroleum gas (LPG) in the declared goods list in the Budget 2007.

While the declared goods status for natural gas and LNG would benefit companies like RIL, Gail and Ratnagiri Gas & Power (erstwhile Dhabol Power), the status for biofuels and biodiesel would enhance commercial viability of governments biodiesel and ethanol-blended petrol (EBP) programmes.

The proposal to accord declared goods status to biofuels and biodiesel has its origin in the government move to encourage doping of petrol and diesel. The biodiesel purchase policy, which identified 20 purchase centres, could not be effectively implemented and has so far been unsuccessful. The cost of biodiesel is stated to be in the range of Rs 35/lt to Rs 52/lt, while diesel in Delhi is sold at Rs 30.48/lt. Consequently, oil companies shy away from selling biodiesel.

In October this year, 5% ethanol blending was made mandatory across the country (except for J&K, north-eastern states and island territories). The government has also directed that a 10% EBP would be mandatory from October 2008. The success of the EBP programme depends on commercial viability.

There has been different sales tax structure on ethanol across the country which is a major constraint in the success of EBP programme. Besides a 16% central excise duty, sales tax on ethanol varies from 4% to 20% in different states.

States also levy various surcharge, export fee (from one state to another state), import fee, permit fee, license fee, administration fee and state excise. Not all states produce ethanol. The states producing ethanol are UP, Karnataka, Tamil Nadu, AP, Maharastra, Gujarat and Bihar.

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