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Tax rejig for gas firms may hurt RIL
April, 16th 2008

Gas producing companies may lose their income tax holiday. This would have major implications for companies like Reliance Industries (RIL) as it would soon emerge as one of the key gas producing companies in the country. The finance ministry, which had proposed withdrawal of income tax holiday for exploration & production of oil and gas in the Budget for 2008-09, may now bar income tax sops for gas companies alone.

In other words, while oil producing companies will continue to enjoy a tax holiday, companies producing natural gas may be deprived of this incentive.

The Finance Bill 2008-09 has also proposed to include a new definition of mineral oil in the section 80-IB(9) that excludes petroleum and natural gas. The finance ministry, which is reviewing its Budget proposal, may carry out an amendment in the Bill to include petroleum in the definition.

The proposed amendment in the section to include petroleum in the definition of mineral oil would allow a seven-year tax holiday to crude oil producers while excluding natural gas producers. Sources said the finance ministry may not relent on natural gas availing the tax holiday.

The oil ministry has taken up the issue with the finance ministry and submitted a detailed note. We have written to the finance ministry to review its decision of withdrawing tax exemption for E&P of petroleum & natural gas on the lines of the New Exploration Licensing Policy (Nelp). We are sure that the fiscal regime under Nelp will continue, an official in the oil ministry said. Pending clarification from the finmin, the last date for submitting bids for 57 blocks under Nelp-VII has been postponed from April 11 to April 25.

Stating that a fiscal regime should not be changed mid-way, an official in petroleum ministry said that the finmin had neither consulted us (the oil ministry) nor had taken the Cabinet into the confidence before proposing withdrawal of the tax benefit.

The Budget memorandum explaining the provisions of the Finance Bill, 2008 and notes on clauses of the Bill appear to suggest that tax holiday may not be available on commercial production of natural gas since the term mineral oil does not include petroleum and natural gas, unlike in other sections where it is defined that mineral oil includes crude oil and natural gas.

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