The Hindu Business Line : 7-year tax holiday extended to gas producers

Respite
Profits from production and sale of natural gas get seven-year tax break
Seven-year tax holiday also for private players setting up oil refineries by March 31, 2012
Domestic petrol, diesel prices to move broadly in sync with global prices

Our Bureau

New Delhi, July 6 The Finance Minister, Mr Pranab Mukherjee, has offered some respite to hydrocarbon companies involved in exploration and pipeline networks but left questions of oil retailers unanswered, particularly on the issue of petrol and diesel pricing.

For the exploration and production companies, the Finance Minister put to rest the uncertainty on if profits from production and sale of natural gas attracted a seven-year tax break. In his speech Mr Mukherjee said, “… I propose to extend the tax holiday under section 80-IB (9) of the Income-Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas.”

Memorandum

The memorandum explaining the Finance Bill states: “The taxpayers have been holding the view that every well in a block licensed constitutes a single ‘undertaking’ and accordingly the tax holiday is available separately for each such well. However, this view is against the legislative intent.

“Accordingly, it is proposed to amend sub-section (9) by inserting an explanation so as to clarify that the purposes of claiming deduction under sub-section (9), all blocks licensed under a single contract, which has been awarded under NELP announced by the Government or has been awarded in pursuance of any law for the time being in force or has been awarded by the Central or a State Government in any other manner, shall be treated as a single ‘undertaking’. This amendment is proposed to take retrospective effect from April 1, 2000, and will, accordingly, apply in relation to assessment year 2000-01 and subsequent years. This definition of undertaking will be applicable both in relation to mineral oil and natural gas.”

Easing flow

The Budget givesseven-year holiday on payment of income tax to private companies that set up new oil refineries by March 31, 2012. Previously, oil refineries in private sector coming up after April 1, 2009 were not given this benefit.

“The new terminal date will be the same for both the public and the private sector,” it said.

For the gas infrastructure sector, the Finance Minister announced a blueprint for long-distance gas pipeline highways leading to a National Gas Grid. This would facilitate transportation of gas across the length and breadth of the country.

On the issue of petroleum and diesel pricing policy, Mr Mukherjee said, “… it is important to recognise that, with almost three quarters of our oil consumption met through imports, domestic prices of petrol and diesel have to be broadly in sync with global prices of these items. Government will set up an expert group to advice on a viable and sustainable system of pricing of petroleum products. Details will be announced by my colleague, the Minister for Petroleum and Natural Gas.” This has left the retailing companies, who were looking for some direction on retail pricing, directionless.

The companies have been incurring revenue loss on sale of petrol, diesel, domestic LPG and PDS kerosene for selling at a controlled price. The Government had recently increased the prices of petrol and diesel to partially control the under-recoveries incurred by these companies.

The Finance Minister has also provided for the issuance of special securities of Rs 10,306 crore to the oil marketing companies in lieu of subsidies for this fiscal. This is in addition to the petroleum subsidy of Rs 3,109 crore paid in cash. During 2008-09 oil bonds worth Rs 75,942 crore were issued along with cash compensation of Rs 2,876.43 crore.

To give infrastructure development the desired boost, the Finance Minister has extended investment-linked tax exemptions to companies that are in the business of laying and operating cross-country natural gas, crude or petroleum oil pipeline networks for distribution on common carrier principle.

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