Sops to Paradip refinery to hit Odisha tax collections

State to incur whopping Rs 2,000-cr yearly loss in sales tax collection

The imminent commissioning of the Rs 34,555 crore refinery of Indian Oil Corporation (IOCL) at Paradip may put Odisha on the world crude refining map, but it hardly brings cheers to the state dispensation as the project is slated to knock off whopping Rs 2,000 crore per annum from the basket of sales tax collection on petroleum products in the state.

This is because Odisha had agreed to defer collection of sales tax on the products to roll out from IOCL's Paradip refinery for eleven years from the date of commissioning of the project to facilitate its implementation a decade ago.

IOCL, at present, has about 65% share of the petroleum products market in Odisha, which earns about Rs 3000 crore from this sector towards sales tax, accounting for nearly 25% of the state's total VAT/sales tax collection annually.

As the IOCL's Paradip refinery intends to cater to the eastern and southern markets, which are currently fed from other sources, the deferment of sales tax collection on the company's products in the state would mean annual loss of Rs 2000 crore revenue for next eleven years, pointed out a state finance department official.

"This has become a measure cause of worry for the administration as to how to cover this substantial fall in revenue collection over the next decade", he added.

In fact, according to a state finance department assessment done couple of years back, the state was estimated to lose Rs 25000 crore revenue from this project over next 11 years which would only be redeemed after this moratorium period without any interest obligation.

This loss could now be even higher as the state has hiked sales tax rate on petroleum products twice in last one year- first from 20% to 23% in December 2014 and then to 26% in January, 2016.

Apart from deferment of sales tax collection, the state government has also allowed 30 years exemption on CST collection to the project which meant the state would not get any revenue from the export of petroleum products from this refinery to other parts of the country.

The state government has formed a high level committee headed by additional chief secretary (finance) to study the revenue loss on account of tax sops to the Paradip refinery and how to cushion the impact in consultation with IOCL and Central petroleum ministry authorities.

It may be noted the IOCL's 15 million tonne refinery at Paradip is scheduled to be dedicated to the nation by Prime Minister on February 7.