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No additional tax exemptions for petrochem hubs
October, 23rd 2006
The tax sops for the proposed petroleum, petrochemical and speciality chemical investment hubs are being re-worked by the government to ensure that they do not become another drain on the fisc like special economic zones (SEZs).

The revenue department has, therefore, recommended amendments to the tax treatment of companies in the speciality hubs. The department has taken a position that no additional tax sops and favoured treatment should be doled out, which exceed the benefits for SEZ projects.

At stake are the investment plans of multinationals like BASF, Exxon Mobil, Royal DSP, BP and Dow Chemicals, which have evinced interest in the regions. The Centre, the state government and entrepreneurs are expected to invest about Rs 67,500 crore initially in the projects.

Sources said these regions could apply for SEZ status and get all tax benefits available under the scheme. An SEZ gets income tax exemption for 15 years 100% for the first five years, 50% for the next five years and 100% exemption for ploughed-back profits for the next five years. Besides, the developer is also exempted from customs, excise and service tax on inputs for building the infrastructure.

The draft policy on the Petroleum & Petrochemical Investment Regions (PCPIR), floated jointly by the ministry of chemicals and fertilisers and the department of industrial policy and promotion, has proposed a 10-year income tax holiday.

The PCPIR does reflect the revenue departments suggestions, but the Cabinet will take a collective decision on the policy, a chemicals and petrochemicals department source said.

The revenue department is now attempting to pare tax exemptions after a host of incentives were given to SEZs. It fears huge revenue losses in SEZs itself.

The draft PCPIR policy has also proposed that any units within the investment region would get all benefits an SEZ is otherwise entitled to. It would also be eligible for viability gap funding and would be created on a public private partnership model.

Of the projected Rs 67,500 crore needed to develop a PCPIR, Rs 13,500 crore will go towards building road and the rest to upgrade the attached ports. Most of the planned PCPIRs are to be located on the western coast, as they will be dependent on imported crude.
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