PowerPoint Presentation

Outcome from Jaitley201576,000 crore allocated to PSUs for project expansion in overseas and domestic.Subsidy reduced to 30,000 crore from 60,000 crore.2400 crore for strategic petroleum reserve in Vishakhapatnam, Pundoor, Mangalore.Education cess on crude oil import is removed.

ImpactIncrease in road cess on petrol and diesel has been completely offset by the decline in basic excise duty and removal of education cess. Hence, there will be no impact.As petrol and diesel imports are marginal, exemption in special additional customs duty will not have any major impact.

No relief for E&P companies as they cannot take CENVAT credit of service tax incurred for exploration and production

Half the custom duty on isoprene and liquefied butane product.Rs 4 per litre into Road Cess

Government announces oil subsidy of Rs 300 billion for 2015-16.Change in excise duty structure on petrol and diesel: Reduction in CENVAT by Rs 3.5-3.7 per litre, increase in road cess by Rs 4 per litre, removal of 3 per cent education cess levied on overall excise dutyExemption of special additional customs duty on petrol and diesel, in excess of Rs 6 per litre.

No relief for E&P companies as they cannot take CENVAT credit of service tax incurred for exploration and production

Half the custom duty on isoprene and liquefied butane product.Rs 4 per litre into Road Cess

Government announces oil subsidy of Rs 300 billion for 2015-16.Change in excise duty structure on petrol and diesel: Reduction in CENVAT by Rs 3.5-3.7 per litre, increase in road cess by Rs 4 per litre, removal of 3 per cent education cess levied on overall excise dutyExemption of special additional customs duty on petrol and diesel, in excess of Rs 6 per litre.

Expectations from Arun Jaitely w.r.t O&G Sector

ImpactIncrease in road cess on petrol and diesel has been completely offset by the decline in basic excise duty and removal of education cess. Hence, there will be no impact.As petrol and diesel imports are marginal, exemption in special additional customs duty will not have any major impact.

Expectations from Arun JaitelyThe tax holiday provisions were retrospectively amended from 1999-2000 to specify that all blocks licensed under a single contract shall be considered as a single undertaking. This means that the period for which tax holiday is available and the quantum calculation are done at contract level. This amendment is regressive and significantly dilutes the benefit available. The definition of undertaking should be amended to extend the benefit of tax holiday provision to each field within a contract area.

Expectations from Arun JaitelyFurther, E&P companies incur huge exploration costs in the initial years. These expenses are tax deductible, resulting in losses or negligible profits. Thus, most companies are not effectively able to claim tax holiday benefits. One recommendation is that the existing period of tax holiday of 7 years should be extended to 10 years for companies engaged in production of mineral oil. It is also suggested that the benefit should not be restricted only to blocks licensed under a contract awarded till 31 March 2011. The benefit should be extended till 31 March 2017.

Expectations from Arun JaitelyFurther, currently, the tax holiday provisions apply only to specified natural gas and coal bed methane blocks (CBM) as natural gas and CBM are not considered to fall within the definition of mineral oil. The proposed Model Revenue Sharing Contract (MRSC) has defined the term petroleum to include shale oil, shale gas and coal bed methane. Since the MRSC will cover natural gas and coal bed methane as mineral oil, requisite amendment should be brought in the tax laws to benefit the existing blocks.

Expectations from Arun JaitelyAs far as oilfield service providers who are taxed on presumptive taxation basis (i.e.,10% of gross receipts are deemed income) are concerned, the issue whether the statutory taxes like service tax recovered by non-residents from Indian parties should form a part of the gross receipts has been a subject matter of long drawn litigation. It is recommended that a clarification is issued that the government dues which are recovered by oil field service providers should not form a part of the gross receipts since there is no income element therein.

Expectations from Arun JaitelyIn 2010, an amendment was introduced that excluded technical services from the scope of presumptive taxation and subjected them to net basis taxation. This has resulted in onerous compliance burden (such as maintaining books and getting accounts audited) on several oilfield service providers. Also, there is a lot of litigation on this issue which activities constitute technical service and which fall within the exclusion provided (for certain activities) under domestic tax laws and applicable tax treaty. It is recommended that this amendment is reversed.

Expectations from Arun JaitelyThe tax laws provide for a weighted deduction ie investment-linked incentive of 100% deduction of pre-commencement capital expenditure is allowed for laying and operating a cross country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities. In order to support the economic growth, it is recommended that the investment linked incentive be extended to dedicated pipelines and intra-city & intra-state gas distribution networks.

Expectations from Arun JaitelyOn the indirect tax front, the Union Budget would be released in the midst of Governments endeavour to bring in Goods and Service tax (GST). There is anticipation for announcement of the possible time lines for implementation of GST and the draft GST laws. Given that the Government is committed to introduce GST from 2016, the Industry is hopeful that CST would be completely phased out in this Budget or proposed CST rate of 1%.

Expectations from Arun JaitelyA long standing industry demand has been inclusion of natural gas, which is essential for Power and fertilizer projects, as declared goods so that VAT rate on such goods is subject to a ceiling rate of 5%.

Expectations from Arun JaitelyConsidering the huge capital investment and uncertainty involved in the exploration activity, service tax leviable on exploration activities should be withdrawn or refund provision should be granted.