Likely upstream tax breaks from the budget also

Vol 5, PW 26 (27 Feb 02) People & Policy

GOOD NEWS POSSIBLY for Indian and overseas explorers, too.

One of the oil ministry's key recommendations is a proposal to introduce uniform tax rates for foreign and domestic explorers. "Earlier the tax rates were uniform but for the last few years foreign companies are paying higher tax.

A uniform rate will attract more foreign investments with modern technology." Also proposed is to exempt explorers from MAT (Minimum Alternate Tax). "There is a seven-year tax holiday for exploration and extraction of crude oil, but this has been nullified by imposing MAT." Ministry officials want to exempt explorers from tax on interest income and dividend to attract "risk capital for exploration of oil and gas." More, the oil ministry wants to let companies deduct from taxable income all payments towards "consideration" for buying exploration or producing properties in India or overseas.

"These should be treated as deductible business expenses for that year." Another key proposal is to allow deduction of assignment expenses from the income of an assignee under a production-sharing contract. We learn this is to correct a two-year-old anomaly where assignment income received by the assignor is taxed.

More, the oil ministry wants Section 42 to be amended to include a provision which will "explicitly" allow companies to set-off or deduct losses incurred in exploration and extraction of crude from other sources of income "in line with Sections 70 and 71."