With crude oil prices at their highest ever, Budget 2006 might come out with a slew of initiatives in the form of tax sops in order to promote domestic oil production and also further research and development (R&D) in this sector.These likely changes are distinct from the recommendations made by the Rangarajan Committee, which specifically looks at pricing and taxation of petroleum products. Therefore these would be industry level changes that would help promote domestic oil production and also keep prices at a reasonable level.In this regard, there may be no customs duties on capital goods for new refineries as well as on green fuel projects mandated under the auto fuel policy. Such a measure, it is hoped, will help bring down the capital costs and would allow new refineries to compete with those in the private sector which were allowed zero-duty project imports.Under the current rates applicable, the project imports are subject to a basic customs duty of 5 per cent plus an additional countervailing duty of 16 per cent. In addition to these, they also have to pay a 2 per cent education cess.The government may also affect a cut in the basic customs on project imports for crude, product and gas pipelines as well as for project imports for developing CNG and auto LPG infrastructure. In this case, the basic customs duty is as high as 15 per cent to which a CVD of 16 per cent and an education cess of 2 per cent is added.With alternate sources of fuels being the buzzword, the budget can also give a boost to R&D in this area by allowing customs duty exemptions for specific equipments/chemicals that are imported by companies and used for these purposes. At present such exemptions are given to research institutions and are not given to companies that also undertake such activities.
