The Union Budget for 2003-04 will provide for a 10-year tax holiday for the liquefied natural gas business.

Since this will entail amendment to the existing tax laws, the issue will be taken up as part of the Budget exercise.

This has been indicated by the finance ministry in its comments on the proposed LNG policy circulated by the petroleum ministry.

The finance ministry says the tax holiday proposal could go through since "various players in the LNG chain already enjoy certain tax benefits."

The finance ministry, however, did not agree to a zero Customs duty on capital goods imports for construction of LNG terminals at par with power projects, and inclusion of sales of LNG or regassified LNG in the list of declared goods.

The draft LNG policy had proposed that the largest consumers of LNG are the power and fertiliser sectors.

"Since the import of capital goods for the mega-power projects attracts zero duty, it is proposed that the Customs duty on the import of capital goods for the purpose of construction of  LNG terminals, including regassification facilities, be levied at par with the duty applicable on mega-power projects."

By this, the draft policy had said, the applicable Customs duty on the import of capital equipment for construction of LNG regassification terminal would be zero as against the basic rate of 25 per cent applicable on other industrial units.

The finance ministry has also not favoured limiting the number of players in the LNG sector. It does not want regulation to cover the licensing size, location of terminal and the price of LNG.

"Policy formulation for the LNG sector, which involves series of activities, would become cumbersome to administer," the finance ministry has said.

The ministry has also come out strongly against the proposed  restrictions on LNG shipping.

Also, the ministry has opposed the proposed tonnage tax in place of the existing taxation regime in respect of shipping.

The finance ministry, however, has agreed to the continuation of 100 per cent foreign direct investment in the LNG sector right from its import, regassification, distribution and marketing.