Tax Proposals For Exploration Ventures Blocked

The revenue department has refused to clear the chapter on taxation in the model production sharing contract (MPSC) drawn up for the new exploration licensing policy (NELP).

The department has said that in its present form, the taxation chapter would be open to more than one interpretation which could lead to confusion and litigation.

The department has told the petroleum and law ministries that the chapter needed redrafting to remove the anomalies.

The chapter on taxation in MPSC is different from the Petroleum Tax Code, which, incidentally, has also not yet been cleared by the department.

The Petroleum Tax Code deals only with those laws which have general application, like the tax concessions available to the infrastructure sector and are applicable to the upstream petroleum sector as well.

On the contrary, the chapter on taxation in the production sharing contract contains only those proposals which are applicable exclusively to the upstream petroleum sector, like Section 42 of the Income-Tax Act granting various concessions for petroleum exploration, development and production activities.

Unless both, the chapter on taxation in MPSC and the Petroleum Tax Code, are approved by the department, NELP, announced in the 1997-98 Union Budget, cannot take effect.

The petroleum ministry is pressing the finance ministry for an early clearance of these two issues so that the notice inviting tenders under NELP are issued shortly.

The model production sharing contract for NELP was prepared and circulated to the empowered committee of secretaries, consisting of secretaries to the ministries of petroleum, law and finance, for approval. At its meeting on December 12, 1997, the committee approved the model contract.

The minutes of the meeting were later concurred to by the ministries of law, environment and forests, and finance.

However, while giving its concurrence in June 1998, the finance ministry said that the chapter on taxation should be cleared by the revenue department separately.

Though the petroleum ministry took up the issue separately with the revenue department and followed it up with discussions and reminders, the revenue department has yet to give its approval.