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Deora puts his foot down, seeks tax gains for gas too

Oilmin not to go ahead with Nelp IX till issue settled.

, ET Bureau|
Apr 21, 2010, 04.32 AM IST
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NEW DELHI: The ninth round of bids for oil and gas exploration blocks could be delayed due to an unresolved dispute over tax concessions to the natural gas sector.

The oil ministry has decided not to launch the bidding process under the new exploration licensing policy (Nelp-IX) unless production of natural gas also gets tax concessions, a government official said.

The oil ministry says the Union cabinet had granted a seven-year tax holiday for producing both oil and gas from blocks awarded under Nelp. “Restricting the tax holiday only to oil production is not true to the spirit of the Cabinet decision,” the official said, requesting anonymity.

The controversy over tax concessions for natural gas started when the then finance minister P Chidambaram proposed to redefine “mineral oil” in the 2008-09 budget.

The Finance Bill said “the term mineral oil does not include petroleum and natural gas” for the purpose of enjoying the tax holiday.

While crude oil producers got to enjoy a seven-year tax holiday on their profits, the new definition prevented natural gas producers from availing the exemption.

The finance ministry withdrew the definition of mineral oil for the purpose of section 80-IB(9) stating that the proposed change in the Bill was aimed at clearing the ambiguity as different tax tribunals had taken varied positions on the issue.

The situation didn’t change even after the move, as the income tax department continued to accept the tax holiday only in respect of production of crude oil.

In his July 2009 budget, finance minister Pranab Mukherjee had made a one-time exception for Nelp-VIII. He allowed tax concession to gas production as well, but restricted the benefit to blocks awarded under Nelp-VIII.

The oil ministry says that mineral oil must be defined as hydrocarbon, which can be either crude oil or natural gas or both. It says exploration & production (E&P) is undertaken for hydrocarbon and not for either oil or gas. An energy firm may find oil and gas both from the same block. Offering tax holiday for crude oil and not for gas is illogical. The purpose of the tax holiday is to encourage E&P and attract investments.

“The anomaly must be corrected for better response in Nelp-IX,” an oil ministry official said, requesting anonymity.
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