The petroleum ministry has proposed that exploration and production (E&P) companies should be exempted from paying minimum alternate tax (MAT) and should be given a higher tax holiday of 10 years. E&P companies currently enjoy a tax holiday for the first seven years.
The ministry has said that the E&P sector enjoys seven-year tax holiday as per the provisions of Section 80 IB, but it is unable to take advantage due to applicability of MAT. In order to retain the benefit of tax holiday, the E&P sector should be exempted from the applicability of MAT, a source in the government said. Further, the companies are unable to take advantage of the tax breaks as the fiscal sop is applicable at a time when the taxable income of the companies is low.
It argued that as the initial costs in E&P are high, effectively exemption is not available for the full period. There is not significant taxable income in initial years by E&P companies due to deduction available on account of revenue and capital expenditure. During this period, the provision of MAT is also applicable.
Besides seeking exemption from MAT, the ministry has also pitched for extending the tax holiday period fr-om seven years to 10 years for the E&P sector. If not feasible, they should be allowed to avail tax holiday incentives for seven years in a block of 15 years to realise the actual intent of such incentives and encourage companies to invest more money in exploration of oil and gas, it said.
The rate of MAT was increased from 7.5% to 10% in the last Budget. Under Section 115 JB, MAT is applicable if the tax payable on the total income computed under the Income-Tax Act in respect of any previous year relevant to the assessment year commencing on or after April 1, 2001, is less than seven-and-a-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable for the relevant previous year shall be seven-and-a-half per cent of such book profit.