Oil min seeks more tax relief for pipeline biz

The petroleum ministry has asked for enhanced tax relief for companies laying and operating cross-country petroleum pipelines.

Currently, the government allows these companies to deduct their entire capital expenditure made for laying and operating pipelines the previous year, while computing their taxable income if they reserve a third of the capacity for outsiders. The petroleum ministry has now told the finance ministry that the investors in cross-country pipelines should be allowed to reserve one fourth of their transportation capacity to outsiders (which means more tax relief), said a person privy to the development.

The oil ministry has also recommended that companies doing research in petroleum and alternate fuels like condensed natural gas, ethanol and hydrogen should be allowed duty-free import of research equipment and chemicals. Besides, they should also be given excise exemption when these items are sourced locally.

The oil ministry wants the finance ministry to amend the Income Tax Act so that the third-party usage norm for cross-country gas pipelines is the same as the norm prescribed by the downstream regulator, petroleum and Natural Gas Regulatory Board (PNGRB). The regulator maintains that one-fourth capacity of crude and petroleum products pipeline should be left for third party use.

For natural gas pipeline operators, the regulator’s third party use requirement is one third of capacity. Cost of acquiring land, goodwill or any financial instrument is not allowed to be included in the capital spending.

Access to transportation facility for entities other than the pipeline owner and associates is provided at the tariff fixed by the regulator because it is not feasible to let more than one entity to lay pipelines to serve one geographic region. Such access is to be given in a non-discriminatory way.

The oil ministry has also recommended that companies doing research in petroleum and alternate fuels like condensed natural gas, ethanol and hydrogen should be allowed to import research equipment and chemicals duty free. Besides, they should also be given excise exemption when these items are sourced locally. The petroleum ministry has also asked the finance ministry to scrap the duty of Rs 50 a metric tonne levied on locally produced and imported crude oil to raise funds for relief work in calamity struck areas. Domestic crude also attracts a Rs 2,500 a metric tonne cess, but no excise duty.

Senior finance ministry officials told FE that while the ministry may be willing to make small concessions to the sector, significant sops like giving infrastructure status and the accompanying ten year income tax holiday to the entire hydrocarbon exploration and production activities is not possible. The petroleum ministry is, however, making a compelling case for it. Now income tax sops are available for different segments in the industry—tax holiday for mineral oil refiners (but not beyond 2012) and for those laying cross-country pipelines.

The petroleum ministry also wants the finance ministry to step up the direct subsidy component from union budget for kerosene and domestic LPG when it extends the scheme beyond March 31, 2010. Now the budget subsidy on kerosene and domestic LPG is a small part of the entire subsidy to these products, which are met partly through discounts from producers and partly through issue of oil bonds to retailers. Stepping up direct subsidy would enhance transparency in government accounts and reduce the requirement of oil bonds to state-run retailers, said a government official, who asked not to be named.

Source: Financial Express

_________________________________________________________________________________