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Meeting SPs demand on EOU, windfall tax may not be easy
July, 09th 2008

Meeting the demand of the Samajwadi Party (SP), whose support is crucial for the Congress-led Government, on withdrawing the export oriented unit (EOU) status extended to private sector refinery like Reliance Industries Ltd (RIL) and levy of windfall tax on private refiners may not be easy for the Centre.

Under the current laws, the EOU status cannot be revoked unilaterally. Industry experts told Business Line that an EOU status conferred on a unit by the Government cannot be withdrawn so long as all conditions associated with the approval of such a status continued to be met by the unit.

Sources familiar with EOU policies and regulations said, For grant of EOU status, a letter of permit is issued by the unit approval committee (UAC) along with the conditions that need to be met by the unit. The UAC comprises the development commissioner concerned besides the representatives of Finance and Commerce Ministries and also that of the State Government concerned. The EOU status is usually granted for a period of five years. After that period the performance of the unit concerned is reviewed and then a view is taken by the UAC on extending the status to the unit. Therefore, withdrawal of such a status would require nod of all the authorities concerned.

As regards levying a windfall tax on private refiners and oil producers, the Finance Ministry officials said that there was no proposal before us as on date to introduce tax on any windfall profits of refineries arising from the recent spurt in international oil prices.

The Indian income-tax law in the present form does not even recognise windfall profits. All profits are brought to tax unless specifically exempted by any provision of income-tax law, official sources said.

Meanwhile, the Petroleum Minister, Mr Murli Deora, said that both the issues were out of his jurisdiction. The issue of imposing windfall tax has also been raised by the Left parties.

Meanwhile, oil industry sources said, the production sharing contracts (PSCs) regime already provides windfall taxes to the Government as the gains from high oil prices is also shared with them in the form of profit petroleum. They point out that around the world, Governments have only thought of windfall taxes in non-PSC regimes where there are flat royalties and taxes that do not enable the Governments to share in higher oil prices.

India seriously needs investments in oil and gas and proposals like windfall taxes would further deter investment. For instance, the latest NELP round did not attract many major private sector investment, industry sources said. Besides, any windfall tax introduced now would largely impact public sector producers who are already suffering heavy subsidy burdens. The public sector oil companies like ONGC produce bulk of Indias current crude output.

In reply to a question that the suggested windfall tax was aimed at refiners and not producers, industry sources said, windfall tax is a punitive measure that is very much short term and has been proved in the past to be ineffective.

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