The finance ministry has turned down power minister Sushil Kumar Shinde’s demand to waive of the 5 per cent customs duty on LNG (liquefied natural gas) imports for power generation.
LNG currently attracts a nominal rate of 5 per cent basic customs duty with no countervailing duty (CVD).
Shinde, while seeking a fiscal stimulus package for the power sector, had asked Prime Minister Manmohan Singh to impress upon the finance ministry to incorporate the proposal to waive off the customs duty on LNG imports for the power sector in the forthcoming interim budget.
However, the Department of Revenue in a recent communication to the Prime Minister’s Office refused to extend this benefit. This, it said, would be seen as preferential treatment to gas as a fuel for power generation vis-à-vis other energy
Quoting the task force on implementation of Fiscal Responsibility and Budget Management (FRBM) Act, 2003, the finance ministry observed that such exemptions are nothing but a discretionary subsidy and have undesirable side effects like loss of transparency, higher administrative costs and possible misuse.
Stating that exemption from customs duty on LNG would not have any significant impact to the end user, the ministry said, “Due to its nature and availability, LNG is not freely importable. Moreover, price of LNG varies widely and such a concession would only benefit existing gas based power plants.”