The following changes in the duties have been proposed in the Union budget 2008-09:

• No changes made in the Corporate Tax rates.

• Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees to be abolished.

• Minimum Alternate Tax (MAT) to be increased to 15% of book profits from 10%. The period allowed to carry forward the tax credit under MAT to be extended from seven years to ten years

• Government to set up an expert group to advise on a viable and sustainable system of pricing petroleum products.

• Investment linked tax incentives to be provided to the business of laying and operating cross-country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments to be fully allowable as deduction.

• Customs duty on bio-diesel to be reduced from 7.5% to 2.5%.

• Excise duty on Special Boiling Point spirits to be reduced to 14%.

• Excise duty on naphtha to be reduced to 14%.

• Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted from excise duties.

• The ad valorem component of excise duty of 6% on petrol intended for sale with a brand name to be converted into a specific rate. Consequently, such petrol would now attract total excise duty of Rs.14.50 per litre instead of '6% + Rs.13 per litre'.

• The ad valorem component of excise duty of 6% on diesel intended for sale with a brand name to be converted into a specific rate. Consequently, such diesel would now attract total excise duty of Rs.4.75 per litre instead of '6% + Rs.3.25 per litre

• Extension of the income tax benefits under sub-section (9) of section 80-IB of the Income Tax Act, 1961 to private sector for commercial production or refining of mineral oil from earlier public sector only. Private sector companies can now avail benefit in line with public sector for further period of three years i.e. upto the 31st March, 2012.

Extension of income tax benefits to private sector is a welcome move. Non-extension of the benefits would have suffered serious financial setback to private companies serious. However clarity on deregulation of oil sector still persists with the proposal to set up an expert group.

The hike in Minimum Alternate Tax (MAT) from 10% to 15% is an irritant for the corporate sector. On the positive side, this hike has come with a benefit of extending the period allowed to carry forward the tax credit under MAT from seven years to ten years. Also, the hike in MAT will not be earnings dilative but will only be cash flow dilative. The increase in liability towards MAT will be matched by an incremental deferred tax credit. Hence, the net profit or EPS of a company will not change due to hike in MAT from 10% to 15%. But it will mean increase in cash outflow, and if the company is not returning to profits as per Income tax act within ten years, then it may have to forego them. So, from a current year(s) point of view, increase in MAT from 10% to 15% is not earnings dilative but cash flow dilative. On the other hand, the removal of Fringe Benefit Tax (FBT) is a major positive for Corporate India.

Stocks to watch

Indian oil, BPCL, HPCL, RIL, Essar oil

In the current global economic downturn deregulation of oil sector was immensely expected along with formation of majority government at the Centre. However the matter was delayed with proposal to form an expert group. Refining margins are also lower in the current scenario. The only good news is extension of tax holiday to private refiners.