Budget 2012: Exporters cheer move to exempt Re payment to iranian oil companies.

NEW DELHI: Exporters have given thumbs up to finance minister Pranab Mukherjee's decision to exempt rupee payments made to Iranian oil companies from withholding tax as it would help in full-fledged implementation of the rupee payment mechanism established for carrying out trade with Iran despite US sanctions.

Iran had agreed to accept 45% of the value of its oil exports to India in rupees but the same could not be implemented as oil companies were worried about tax problems.

"It was feared that the money paid to Iranian oil companies could be considered as income generated by Iranian firms in the country and, therefore, liable to be taxed at 45%, which neither NIOC nor the refining companies were willing to pay," Rafeeque Ahmed, an exporter of leather products and president of FIEO, told ET.

The Union budget 2012-13 has, however, sorted out the problem by proposing to insert a new clause to "exempt income of a foreign company received in India in Indian currency on account of sale of crude oil to any person in India, subject to government approval".

The exemptions would be effective from April 1, 2012. "With the full-fledged implementation of the payment system, exporters can now export more aggressively to the country to utilise the rupee balance in the oil import pool," Ahmed said.

According to the arrangement, Iranian oil companies would deposit their rupee earnings (which would be nearly half the total amount paid to them) in India's UCO bank, which will be used to pay Indian exporters to Iran after their papers are vetted by Iran's Bank Parisan.

The oil companies will be paid the equivalent value in their local currency by designated Iranian banks who, in turn, will be paid in local currency by Iranian importers of Indian goods. India, at present, buys $10 billion worth of crude from Iran, while its exports are only about $2 billion. India needs to more than double its exports to utilise the rupee balance in the oil pool account.

"Iran is keen to add more banks to facilitate the mechanism and is expected to do so soon," a government official told ET.

Officials from India's commerce department had recently accompanied a 70-member strong delegation of exporters led by FIEO to Iran to explore opportunities to increase exports.

Commerce secretary Rahul Khullar had earlier said that there were a large number of commodities that were not hit by UN sanctions on Iran that included textiles, tea, rice, wheat and other foods, as well as pharmaceuticals, engineering and infrastructure project.

India, at present, makes payments for its oil imports to Iran through Turkey's Halkbank. There are, however, fears that that Turkey may come under pressure to stop the arrangement following the fresh round of US sanctions.

Source : economictimes.indiatimes.com