Tax breaks and more

Clarification on tax holiday for gas production paves way for NELP VIII revival.

The finance minister today extended the tax holiday available for oil production and refining to gas production (under section 80-IB (9) of the Income Tax Act) from oil and gas blocks, which will be awarded under the eighth round of New Exploration and Licensing Policy (Nelp-VIII).

Industry experts say the move, which clarifies the consfusion prevailing over the tax holiday, could facilitate successful bidding in the Nelp VIII auction. “Investors had asked clarification on the tax clause and the matter was under consideration with the Ministry of Finance. This will help further a good response for Nelp VIII,” said Petroleum Secretary R S Pandey.

The Ministry of Petroleum and Natural Gas, which had deferred the roadshows for the auction, said it will commence them shortly. Last year, the former finance minister P Chidambaram, through the Finance Bill and an accompanying memorandum tabled in the Lok Sabha, proposed a new clause in sub-section 80-IB (9) that denied the tax holiday for gas production.

All companies, including Reliance Industries, GSPC and Cairn Energy, participating in Nelp VIII stand to gain from this announcement. However, the increase of Minimum Alternate Tax (MAT) to 15 per cent of book profits from 10 per cent is a negative for RIL, according to analysts.

Gas grid and de-regulation of fuel price
The finance minister also said that a blueprint will be developed for long distance gas pipelines leading to a National Gas Grid to facilitate transportation of gas across the country. The government will also set up an expert group to advise on a viable and sustainable system of pricing petroleum products, linking domestic fuel prices with global rates. The Budget has sought parliamentary approval to issue Rs 10,306-crore worth of oil bonds to compensate oil marketing companies for underrecoveries on the sale of petroleum products during the first quarter. The government had issued bonds worth Rs 75,942 crore last year. Besides, the Budget has given a direct subsidy of Rs 2,840 crore for LPG and kerosene as against Rs 2,700 crore allocated during 2008-09.

Branded fuel gets cheaper
Branded fuels, mostly used by high-end vehicles, will now attract only a specific duty as against the current combination of the ad valorem component of excise duty of 6 per cent and a specific duty. This practice will insulate the consumers from the fluctuations of fuel prices, while the government would continue to get its fixed revenue.

Thus, branded petrol would attract a total excise duty of Rs 14.50/litre instead of the 6 per cent plus Rs 13/litre. Diesel, on the other hand, will only attract a total excise duty of Rs 4.75/litre instead of the 6 per cent plus Rs 3.25/litre.