| Subject: |
Incentivising the oil & gas sector |
|
Finance minister Arun Jaitley, during his last week’s Union Budget speech, noted that India is unable to discover and exploit its rich oil and gas resources to the fullest. Rising oil imports result in substantial foreign exchange outgo, and there is an imminent requirement for a drive towards self-sufficiency in meeting the energy requirements of the country.
The finance minister did state that the government is considering incentivising gas production from deep-water, ultra-deep-water and high pressure-high temperature areas, which are currently not exploited on account of high cost and higher risks, and providing calibrated marketing freedom through predetermined ceiling price for new discoveries and areas which are yet to commence production.
However, the tax proposals do not reflect any sincere measures to attract investment and technology in the sector. The proposals on the tax front, on the contrary, include providing a sunset clause for phasing out of existing profit-linked tax incentives, available on production of mineral oil for seven years at present. In addition, there would be an impact on tax outflow due to ceiling on accelerated depreciation rate up to 40% as against higher rates available on certain specified class of capital assets used by the industry.
Further, the presumptive tax regime for oil and gas service providers is ridden with disputes due to interpretation issues, which has caused an increase in input tax costs and litigation, ultimately impeding the development of the sector.
Though the government’s vision of creating a lower tax and non-litigious regime by phasing out exemptions and deductions is a welcome move, it should not lose sight of the fact that the sector enjoys a special fiscal and tax regime globally, in terms of accelerated capital allowances and depreciation, investment credits, and reduced rate of taxation. This is a tried and tested method, used by developed and developing countries.
Nonetheless, considering the strategic significance of the oil and gas sector and its influence on other important spheres of the economy—as well as the many risks and the fairly long gestation period that it comes with—the sector deserves a special impetus. This may not necessarily always be in the form of tax exemptions and deductions; it could also be in the form of specific subsidies or grants or any other non-tax incentives. The need to boost this sector is of utmost importance, especially when almost 80% of India’s oil consumption is met by imports that cost the exchequer R8.43 lakh crore in FY15, whereas the tax revenue foregone on account of incentives for the sector was a mere R3,400 crore—just 0.4% of what India is spending on import.
Hence, stable and unambiguous tax and fiscal incentives are needed to create an environment conducive for attracting much-needed investment and technology in the sector.
Source : financialexpress.com
|