Petroleum ministry wants tax holiday to continue


New Delhi : The petroleum ministry has approached the finance ministry seeking to reinstate the seven-year tax holiday for the hydrocarbon exploration and production segment, said a senior official.

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But Petroleum Secretary M.S. Srinivasan felt that the removal of the tax holiday will not be a “deal breaker” or deter companies from bidding for blocks under the seventh round of the New Exploration & Licensing Policy (NELP).

Speaking to reporters at the fifth Asia Gas Partnership Summit, Srinivasan Monday admitted that there were “concerns over certain issues regarding taxation”.

“But I do not see this as a deal breaker,” he stressed.

As per the Income Tax Act, companies producing and refining mineral oil will get 100 percent tax relief on profits for seven years.

But, according to the recently introduced Financial Bill, 2008, tax holidays will be withdrawn if operations begin after April 1, 2009. Further, the term ‘mineral oil’ does not include petroleum and natural gas, thereby removing the exploration and production sector from the ambit of the tax relief.

“There are certain apprehensions, which we have collected and given to the finance ministry,” srinivasan said, adding that the issue would be resolved amicably.

The tax holiday was one of the key incentives for companies to bid in NELP since 1999.

Srinivasan said that the effect of the withdrawal on the bidding under NELP cannot be discerned yet, as most of the bids come only in the last week. The deadline for NELP VII is April 25, extended from the earlier limit of April 11 to get more clarity on the subject from the finance ministry.

“As per our past experience, more than 90 percent of the bids only come in the last week and half of that in the last two days. So, we are waiting and watching. It’s not possible to predict before,” he said.

India launched the seventh round of bidding under NELP on Dec 13, 2007 for 57 exploration blocks and expected to attract investment between $3.5 billion to $8 billion.