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India lacks a gas utilization policy
Does India have a rational gas utilization policy ?. No say most energy analysts. What India has is a merely series of allocations of gas to select users made by the Empowered Group of Ministers.
- Existing fertiliser (urea) plants would be accorded first priority since it has been established that natural gas is the ideal feedstock for production of urea.
- The next priority is to be given to existing LPG extraction plants as LPG is a clean fuel used for cooking and there is a shortage of LPG for domestic use with a quarter of india's requirements being met by imports.
- The next priority is to be accorded to existing gas-based power plants. The gas is to be made available to state owned power plants and then to private power plants.
- The fourth priority is for city gas distribution.
- The next priority is for replacement of the liquid fuel consumption by public sector refineries
- The next priority if for existing industries- such as steel which use natural gas.
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Accordingly , the government has allocated 15.1 mmscmd of KG-D6 gas to fertilizer units, 3 mmscmd to LPG plants, 18 mmscmd to power firms, 0.83 mmscmd to city gas projects and 3.75 mmscmd to steel plants. But critics argue that the mere allocation of gas to different industries does not a constitute a gas utilization policy. Practically all the public discourse on gas utilisation is centred on who gets how much gas and at what price. A gas utilization policy should set out national objectives, analyse the cost and benefits of allocating gas to different users, develop a strategy and clearly show how the stated policy will achieve the objectives.
Critics have also alleged that the current gas allocation policy is a farce because it is based on a completely faulty price-fixation policy . Gas is currently sold at rates ranging from $1 to $5.73 per million British thermal units (mmBtu) depending on source. The government has fixed a base price of $4.20/mBtu for the gas from Reliance Industries' deepwater D-6 block off India's east coast, which is producing 35 million cubic metres a day (mmscmd). The only real price discovery was done by the state owned NTPC when it invited bids for long term supply of gas for its power plants. Yet, the government far from supporting this price of $ 2.34 per million metric British thermal units (mmBtu) has chosen to meddle in the price fixation and fixed a much higher price of $4.20 per million metric British thermal units (mmBtu) through a highly dubious mechanism that favoured the producer and the government. It is not surprising, therefore, that some of the companies, allocated the gas are unwilling to sign the purchase contract- NTPC is a prime example. RIL is, therefore, finding it difficult to sell all the gas could pump out of the field. Reliance Industries has been compelled to limit the production -the KG-D6 fields can produce more than 60 million standard cubic meters per day but the firm is being forced to keep output below 40 mmscmd. RIL wants the government to name new users of the gas so that it could ramp up production to 80 million standard cubic metres per day .
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New tax code lowers tax rates
As part of India's onging tax reforms, the government has unveiled the draft of a brand new direct tax law that would represent a radical review of the Income-Tax Act, 1961. The code is designed to lower the direct tax burden on companies and individuals even as it removes the plethora of tax exemptions.
The code proposes to lower the incidence of tax on corporate and individual incomes. It has proposed lowering corporate tax rate for domestic and foreign companies to 25 per cent from 30 per cent. However, tax benefits accorded to special economic zones will cease after March 31, 2011,
Individual income up to Rs 1,60,000 a year would be exempted from tax. Income up to Rs 1 million will be taxed at 10%, 10-2.5 million at 20% and beyond Rs 2.5 million at 30%. Currently, there is no tax till Rs 1,60,000 of income in a year. However, there is a 10% tax on income between Rs 1,60,000 and Rs 300,000, 20% between Rs 300,000 and Rs 500,000 , and 30% beyond Rs 500,000. However a number of offsetting measures are also included . Under the new tax law, an individuals gross salary would include perquisites such as value of rent-free accommodation, medical reimbursements and leave travel encashment. Taxpayers will also not be able to claim tax benefit on interest repayment on housing loans. However, the benefit would be available if the house is rented.
All savings schemes would also come under EET (exempt, exempt, tax ), implying that they would face tax at the time of withdrawal. However, tax exemption would be available to the Public Provident Fund and other pension fund schemes on withdrawals of amounts accumulated up to March 31, 2011. The code proposes to reintroduce wealth tax on all assets and tax on long-term capital gains, albeit at lower levels.
The code gives a greater say to income tax department on foreign deals. So far , foreign firms that acquired Indian companies have argued that Indian tax authorities have no locus standi over transactions that took place outside India between two overseas parties. Under the new tax code foreign companies wouldnt have the locus standi any more to take the I-T department to court over tax notices on capital gains arising from cross-border acquisition of Indian companies. This would be a significant development, especially against the backdrop of the recent $2-billion tax dispute between Vodafone and the I-T department.
Some analysts are concerned over the fact that the new tax code allows tax commissioners to override the Double Taxation Avoidance Agreements (DTAA) India has signed with other countries.
The new tax code is scheduled to be operative from 2011, when it will become a law.
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