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Crude oil producers benefit from 5% customs duty

February 27, 2010 13:30 IST

The domestic crude oil producers will benefit from levy of customs duty at 5% on crude oil, and effective tax incidence will come down due to weighted deduction on R & D as well as cut in the surcharge on corporate taxes for domestic companies.

Budget provisions

The following announcements have been proposed in the Union budget 2010-11:

Industry expectations - Not fulfilled

Budget impact

None of the expectations of the oil drilling and allied services were full filled in the Union Budget 2010-11. However on the negative side MAT rates were increased from 15% to 18% as these companies normally earn higher book profits in the initial years after commercial production begins, since the tax deductions in respect of exploration and drilling expenditure is granted on an accelerated basis.

On the positive side, there will be marginal reduction in the effective corporate tax due to reduction in surcharge from 10% to 7.5%.  With the landed cost of crude oil increasing due to levy of customs duty at 5%, it will benefit indigenous crude oil producers like ONGC, Cairn India and Reliance Industries.

Stocks to watch

ONGC, RIL, Cairn India

Outlook

The levy of customs duty on crude oil at 5% can boost the effective realisations of crude oil for ONGC and Cairn India.  But this benefit will accrue at a higher rate to Reliance Industries, as it will get the benefit of hike in customs duty on petroleum productions.

No other major industry specific announcement was made in the Union budget 2010-11 besides increasing MAT rates were increased from 15% to 18% and reduction in surcharge on corporate tax for domestic companies. The Union Budget 2010-11 was positive for the Crude oil producers.

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