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Tax sops for refiners to stay
May, 02nd 2008

OIL companies building refineries can now heave a sigh of relief. The government has decided to extend the deadline for seven-year tax holiday to March 31, 2012. The extension under Section 80 IB (9) is through an amendment in the Finance Bill 2008-09. The move is expected to help companies like IOC, BPCL and the Mittal-HPCL combine who are promoting these refineries.

Finance minister P Chidambaram had introduced a sunset clause in the Finance Bill 2008-09 under which tax holiday enjoyed by refiners were to end on March 31, 2009. This had put upcoming refineries in a quandary as removal of tax sops would reduce cost-competitiveness. Major players like L N Mittal, who has a JV with HPCL for a 9 million tonne refinery, had taken up the issue with the oil ministry. BPCL and IOC, which are developing the Bina and Paradip refineries, had also made representations to the government.

With a view to ensuring that the benefit to these refineries is not denied on account of their inability to adhere to this deadline, it is proposed to amend the proposal to provide that such refineries would be eligible to avail of the benefit if they begin refining not later than the March 31, 2012, Mr Chidambaram said.

He, however, left the E&P companies high and dry by not providing a clear definition of mineral oil. The Bill excluded natural gas for the purpose of tax holiday. Section 80 IB(9) of the Income-Tax Act allows 100% exemption in respect of an undertaking which begins commercial production or refining of mineral oil for seven consecutive assessment years.

The scope of this Section is under adjudication since Assessment Year 2001-02 before different tax authorities. In my view, we should allow the disputed issues to be resolved in the normal course by the tribunals and courts, Mr Chidambaram said.

PwC associate director Deepak Mahurkar said: FMs statement has undone some damages. I wish that FM would have resolved the issue rather keeping it open and uncertain.

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