PETROLEUM MINISTRY WANTS TAX HOLIDAY EXTENSION FOR 10 YEARS INSTEAD OF SEVEN YEARS
THE petroleum ministry is concerned that the Budget announcement to withdraw income tax holiday for refining sector may jeopardise the fate of three refinery projects — in Bhatinda (promoted by LN Mittal and HPCL combine), Bina (promoted by BPCL) and Paradeep (by IOC). The ministry has asked the North Block to reverse its budget proposal and extend the tax holiday for 10 years instead of seven years.
“PSUs have initiated grassroot refinery projects in three states — Orissa (Paradeep), Madhya Pradesh (Bina) and Punjab (Bhatinda). Being large capital investments, it will not be possible for any of these refineries to be commissioned by April 1, 2009. These three refinery capacity will not be eligible for the tax holiday, making them commercially unviable,” he added. The Budget 2008-09 has proposed a sunset clause, withdrawing the tax holiday for those refineries commissioned after April 1, 2009.
Officials in IOC, HPCL, BPCL and LN Mittal group agree that that with the proposed change in the income tax law, all new refineries and additional refining capacity will be discouraged and projected investments may not materialise.
According to an official estimate, the total investment proposed for refining sector in the 11th Plan is over Rs 81,500. “The proposed change in the income tax (IT) Act will jeopardise the investment plan and render the projected export potential fruitless,” an official in the oil ministry said.
According to a source, the drawing of the time line as April 1, 2009 for withdrawal of the fiscal incentives would be unfair. “Less than half the projected capacity is expected to be commissioned by the end of 2008, while the balance (including three grassroot refinery projects) is expected to come on line by 2012. The proposed amendment will create a large disparity between the project commissioned till April 2009 and all those commissioned beyond the time line,” it said. At present, the section 80 IB (9) provides for a 100% income tax exemption to a refining firm on its profit for seven years.
Petroleum products accounts for about 17.5% of country’s total exports. According to a commerce ministry data, it has become largest export earner for the country surpassing jem & jewellery. In 2006-07 country exported petroleum products worth around $18.88 billion overtaking gem & jewellery ($12.7 billion).