Natural gas set to gain home ground

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: additional one-third capacity to be made available for use on common carrier to persons other than assessee or any associated person.

The ambiguity of the tax incentive is its applicability for CGD as the term ‘cross country’ is neither explained nor articulated well in law. The economic impact of this aspect is significant and needs early and positive articulation by the Board and the legislators to mitigate needless litigation. The project entities, even if tax holiday is available, are liable to pay a Minimum Alternate Tax (MAT) at 11.33% on ‘book profits’ during tax holiday period.

CGD projects could be funded through equity or debt. Equity being the most common funding source, the distribution of profits emerging from the business is liable to a dividend distribution tax at the rate 16.995%. As with most infrastructure projects, access to external commercial borrowing is essential and therefore it is important for pipelines to be recognised as infrastructure by the Reserve Bank of India—and access to international debt made available even for the domestic expenditure to be incurred.

Development of CGD networks will entail import of pipes etc—imports are liable to custom duty. Pipeline projects engaged in transportation of natural gas are eligible for project import status—the scope of the term transportation should logically encompass both transmission and distribution of natural gas, and hence project import status should be available to CGD projects—clarity on this aspect would be helpful to mitigate any challenges later for the projects.

In the operation stage, CGD network will supply gas to CNG stations, domestic consumers as PNG, other industrial and commercial consumers. Compression of natural gas for supply to CNG stations is specified to be manufacture liable to excise duty, and eligible input credit should be available. PNG, however, is not considered as a manufacturing activity. This inconsistency in the fiscal treatment creates accounting and compliance challenges and abnormalities for computation of credits and taxes. Consistency of the tax treatment and rationalisation of the rates, including by classifying natural gas in the central list of declared goods, would help the scalability and efficiency to be achieved in the roll out of CGD networks across the country.