The Hindu Business Line : Oil sector expects fiscal sops on par with power sector

New Delhi, Feb. 7 The domestic hydrocarbon industry, both upstream and downstream, is expecting the Finance Minister, Mr P. Chidambaram, to consider extending fiscal incentives to them on the lines of those given to other core sectors.

“The hydrocarbon sector – those undertakings which are engaged in commercial oil and gas production or refining — should be treated at par with other infrastructure sectors like power in the matter of fiscal incentives,” industry sources said.

Seeking tax rationalisation to increase domestic capacity of crude oil production and petroleum products for meeting the growing demand, the industry has sought a re-look at certain tax provisions.

The industry has sought a tax holiday for a period of 10 consecutive years out of 15 years from the year in which the commercial production or refining activity is started, putting them on par with the power sector. Currently, a hydrocarbon undertaking, which begins commercial production or refining activity, is allowed a deduction of 100 per cent profits for a period of seven consecutive assessment years, including initial assessment year.

“However, the undertaking is unable to avail of this tax benefit for the full tenure of seven years. This was owing to the huge depreciation claims in the initial three to four years and more particularly because of the permissible deductions under the Income Tax Act, where all capital and revenue expenditure incurred on drilling and exploration activities is fully deductible. As a result, the companies are unable to make any profit in the initial few years as well as get deprived of the full tax benefit,” industry sources said.

For undertakings which have already started commercial productions or refining activity, the industry has said that they could be given the option of claiming 10-year tax holiday starting from the year they begin earning taxable profits so that they enjoy the incentive for the intended period of 10 years.

Alternatively, to ensure that the companies avail themselves of the tax benefit at least for the full term of seven years, the provisions could be so amended to provide flexibility or option to choose any seven consecutive years in which deduction can be claimed out of the first 15 years beginning from the year of production.

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