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PetroMin may go to Cabinet for tax breaks for natural gas

May 15, 2008 17:40 IST

In a bid to save NELP-VII, the petroleum ministry mulls knocking at the Cabinet doors to get tax holidays restored for natural gas production.

Successive round of bidding under the Cabinet-approved New Exploration Licensing Policy since 1999 have promised a seven year exemption from payment of income tax to firms investing in the country's nascent oil and gas hunt.

But after over $ 10 billion investment that yielded mostly natural gas discoveries, the finance ministry has ruled that the tax breaks would be available only to crude oil production and will not be extended to natural gas, sending the seventh NELP round in a tailspin, industry sources said.

The petroleum ministry feels that withdrawal of tax holidays when substantial investment has been made in exploration activities is being viewed as the government reneging on its commitments and could lead to potential litigation.

Such policy changes, it feels, will send out extremely confusing signals to the global oil and gas community especially when India is trying to attract energy majors to exploit potential in the difficult deepsea arena.

Sources said the ministry has postponed NELP-VII bid date to June 30 to use this time period to convince finance ministry of the need for tax holidays for the inseparable oil and gas, failing which it may go to Cabinet to get a decision.

The finance ministry is of the view that tax holidays under Section 80-IB(9) of the Income Tax Act is available to companies engaged in commercial production of mineral oil that has been defined to include only crude oil and not natural gas.

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