With the Union Budget for the next fiscal close on the heels, the oil and gas industry has made a slew of suggestions to the finance ministry ranging from exempting transportation of LNG from a foreign country as well as its re-gasification from levy of GST and service tax, changing the income tax norms governing tax holiday and incentivising the shift towards cleaner fuel for downstream companies. “In order to promote gas-based industry in India, it is suggested that transportation of LNG by a vessel from a place outside India under voyage charter basis may be exempted from levy of Service Tax. Similarly, the activity of re-gasification of LNG also needs to be exempted from levy of Service Tax,” Federation of Indian Petroleum Industry (FIPI) said in its pre-budget memorandum.
India’s domestic production of natural gas is not enough to cater to the increasing demand and large scale imports are required to augment the supply of natural gas for use in priority sectors such as Fertilizer, CNG, LPG and PNG. Currently, service tax (15%) is applicable on the transportation of LNG by vessel from a place outside India to the first customs station of landing in India. Also, imported LNG has to be re-gasified and converted into natural gas for transportation and consumption in India. The activity of re-gasification of LNG attracts Service Tax.
“It is also suggested that the activity of transportation of LNG by a vessel from outside India to India may be exempted with status of ‘zero rated supply’ under GST regime. Similarly, the activity of re-gasification of LNG also needs to be exempted from levy of GST,” FIPI added. The industry body has also stressed on changing the various income tax norms pertaining to tax holiday for companies. Income tax provision of section 80 IB (9) provides a seven year tax holiday for profits derived by an undertaking from the production of mineral oils in India. However, the Finance Act, 2016, had introduced a sun set clause in the provisions of section 80-IB (9), which provide that no tax holiday would be available if commercial production is started after 31st March, 2017.
“Cut-off criteria for the phasing out of tax holiday under section 80-IB (9) may be kept as the intimation of discovery on or before 31.03.2017 rather than the start of commercial production by that date. Alternatively, it should be made applicable on Production Sharing Contract (PSC) signed after that date and not on the PSC already signed and in operation,” FIPI said. With a view to boost the much needed investments in the oil and gas sector, the industry body has also demanded extending the tax holiday benefit from the existing seven years to 15 years or for a period of at least 10 consecutive years within a 15 year period from the year of commercial production.
FIPI also said the government needs to clear the air on the definition of the term “Mineral Oil” by including both crude oil and natural gas under it for the purpose of section 80 IB (9) retrospectively irrespective of NELP rounds. The recommendation assumes importance at a time when frequent changes on the status of tax holiday applicable to oil and gas as per budget notification (NELP VII to NELP IX), has created an uncertainty affecting upstream investments in the natural gas segment.
The domestic industry also flags concerns about the implementation of BS-VI emission norms by April, 2020 and the need to incentivise the shift for downstream companies. Hence, the industry body has suggested that 100 percent depreciation allowance be provided for projects undertaken for up-gradation of fuel quality. The industry seems confident that many of its key recommendations will be accepted by the government. New measures to boost the sector will be keenly watched in the budget with the recent hardening of global crude oil prices. In order to promote the import of LNG, the industry has also demanded inclusion of LNG facility at port location in the definition of “industrial infrastructure” in section 80-IA of Income Tax Act. Mikko Koivu Authentic JerseyShare This