Tax relief hope in gas hunt

New Delhi, July 25: Moves are afoot to keep the tax incentives in natural gas during the next round of bidding for oil and gas blocks. The Planning Commission is keen on the incentives for the ninth round of bidding under the New Exploration and Licensing Policy (Nelp-IX) that is due after September. ?Fiscal incentives similar to the exploration of oil need to be extended to all forms of natural gas exploration and exploitation,? the mid-term appraisal by the Planning Commission said.

The panel recommendation has been approved by the National Development Council, the nation?s highest policy-making body. The tax incentives were discontinued in 2008 that led to a subdued response to the seventh round of bidding among foreigners and even to the postponement of the eighth round. It was only after finance minister Pranab Mukherjee assured the bidders about the sops that the eighth round of bidding took place. ?Efforts are on to make the Nelp regime more attractive,? a senior oil ministry official said.
On whether the definition of mineral oil will include natural gas vis-a-vis tax incentives, the official said, ?We have taken up the issue with the finance ministry. There can be no question of Nelp-IX without tax breaks being worked out for gas as well.? The response to the seventh and eighth rounds have been lukewarm. In Nelp-VII, the government received bids for 45 of the 57 blocks, while only 36 of the 70 blocks attracted bids in Nelp-VIII.

Sources said that about 50 blocks would be on offer in the ninth round of Nelp. Blocks without bids in the eighth round would be put up for sale. According to analysts, the tax holiday will hold the key to the success of Nelp-IX. ?The poor response from exploration and production firms should open the eyes of the government to extend the tax holiday to both oil and gas as the risk on investment is huge.?

Finance minister Pranab Mukherjee, in his budget for 2009-10, restored the seven-year income tax holiday for the production and sale of natural gas from blocks awarded under Nelp-VIII. North Block officials, however, have ruled out extending the benefit to the other rounds of bidding. Companies striking natural gas make profits after recouping the entire cost and, hence, they should not be reluctant to pay tax. If there is no profit, no tax is required to be paid.

Industries exploiting scarce natural resources do not enjoy any tax incentives in most countries. Rather, they pay more taxes compared with other industries.

It was argued that an exemption in India would not help most foreign bidders as the country had double taxation avoidance agreements with the US, UK, Canada and 76 other countries. If they are not taxed in India, they will be taxed in their home soil. Since its launch in 1999, the government has awarded 239 blocks under Nelp. Out of these, 68 discoveries of oil and gas have been made in 19 blocks, establishing reserves of 500 million tonnes of oil and oil-equivalent gas. Meanwhile, a meeting of the empowered group of ministers on natural gas has been put off by a day to Wednesday because of the visit of Myanmar?s ruling military junta leader Than Shwe.

Source: The Telegraph, Kolkata, 26 July, 2010
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