New Delhi, June 22: Oil exploration and production companies such as Reliance Industries and ONGC are expecting policy clarity and tax benefits from the first budget of the Modi government.
Most domestic upstream companies invested more in exploration overseas than in India because of the ambiguity over gas price and policy paralysis during the previous UPA government’s rule.
The explorers expect the tax holiday under Section 80-IB (9) of the income tax act to be extended to 10 years from seven years, from the year of commercial production.
This move, industry sources said, will encourage oil and gas exploration that requires heavy investments and involves risks as well as reduces the import bill.
Analysts said “in the initial few years there is hardly any profit to take advantage of the tax holiday. In the initial years, undertakings have larger expenditure to set off and, hence, the actual benefit of tax holiday does not flow to them”.
An alternative, according to the industry, is to give companies the option of claiming the tax holiday for a period of at least 10 consecutive years within 15 years from the year of commercial production.
At present, the explorers receive a seven-year tax waiver on their income from selling crude oil from a block, but there is no such incentive for natural gas. The oil ministry is expected to take up the problem with the finance ministry.
The industry also said the benefits should not be restricted to blocks licensed under a contract awarded till March 31, 2011, but for contracts till March 31, 2017.
Besides, the industry wants both natural gas and coal-bed methane to come under the definition of mineral oil for the purposes of waivers. Considering the changes from a retrospective standpoint should ensure the availability of the benefit to those awarded blocks in the past
At an event in Moscow last week, BP chief executive Bob Dudley expressed disappointment at the the pace at which certain things have been approached such as the gas price issue. BP is a stakeholder in Reliance Industries’ oil and gas blocks.