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Centre may grant tax sops to energy sector
November, 01st 2006
The government is considering granting tax incentives to the oil and gas sector. Some of the incentives under consideration include a 10-year tax holiday under Section 80 IA of the Income-Tax Act for gas pipelines, storage terminals and other related facilities for transportation and storage of petroleum products. 
 
The demand was raised at a recent meeting of Assocham with revenue department officials. 
 
The contention of the industry is that gas pipelines and associated infrastructure are important to ensure quick and timely distribution of petroleum products. 
 
Industry sources said there are indications that the notification granting tax breaks to the oil and gas sector may be issued soon. 
 
Meanwhile, FICCI has, in its pre-budget wish list, sought inclusion of petrol and petroleum under the value added tax (VAT) regime with uniform VAT rate across all states. 
 
The maximum VAT rate should not be over 12.5 per cent and the difference among states should not be more than 4 to 5 per cent, the Chamber has said. 
 
The chamber has also demanded that declared goods status should be granted to liquid natural gas (LNG). LNG competes with coal which enjoys declared goods status, therefore attracting a maximum of 4 per cent sales tax. 
 
Non-conventional energy could receive a boost in the Budget for the next financial year with incentives expected for the hydrocarbon sector related to exploration, extraction and production of mineral oils. 
 
Under sub-section (9) of Section 80-IB, tax holiday is provided to an undertaking in the hydrocarbon sector which begins commercial production or refining of mineral oil equal to 100 per cent of the profits for 7 consecutive years including the initial assessment year. 
 
However, in the initial few years there is hardly any profit to take advantage of the tax holiday. 
 
FICCI has urged the government to give undertakings the option of claiming tax holiday for seven consecutive years at any time during the first 15 years after the commencement of commercial production. 
 
Industry bodies have also demanded that weighted deduction of the actual expenses incurred by the assessee in drilling and exploration activities should be raised to 150 per cent from 100 per cent at present.
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