BEWARE THE آ‘MINIMUM ALTERNATE TAXآ’

Vol 3, PW 4 (17 Mar 99) People & Policy
     

One of the most common reactions of overseas oil companies to Indias New Exploration Licensing Policy (NELP) is that it offers some of the best terms in the world.

That could soon change if Indias Ministry of Petroleum & Natural Gas (MPNG) fails to convince the Ministry of Finance to drop its insistence that foreign oil companies bidding under NELP pay a 30% tax on Book Profit, known locally as Minimum Alternate Tax (MAT). Indian oil officials admit to this report an oversight in not mentioning in greater detail MAT in the Petroleum Tax Guide (PTG), issued with the Notification Inviting Tender (NIT) to foreign oil companies.

In short, MAT is a uniform 30% tax imposed on all companies operating in India, domestic or foreign. It falls under the provisions of Section 115JA of Indias Income Tax Act, 1961.

The only hint that oil companies will have to pay it under NELP comes in Section 5, Clause 12 of the PTG - issued to oil companies - in the phrase: "The provisions of Section 115JA of the Income Tax Act, 1961 shall apply to a PSC participant in respect of profits and gains derived from a Contract". ie.

taxation at 30% is applicable from the first day of commercial production (unless abolished by the government in the meantime). In its defence, the Indian oil ministry tells this report it is in talks with the Ministry of Finance and the Prime Ministers Office (PMO) to ensure that MAT is not levied on oil companies bidding under NELP.

"I am very confident we will resolve this anomaly before the 18 May deadline for submission of bids", a senior oil official tells Petrowatch.