NO-ONE LIKES A HIGHER TAX RATE

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

One can only hope that talks between the oil and finance ministries over Minimum Alternate Tax do not reach the stalemate that have soured relations over corporate tax rates for foreign and domestic explorers in India.

For months the two ministries have been locked in dispute over the level of corporate tax to levy on foreign oil companies when the tax holiday under NELP expires seven years after commercial production. In India corporate tax levied on foreign companies is 48% compared to the much lower 35% paid by domestic companies.

For two years the oil ministry has argued this policy is discriminatory and a disincentive to oil companies entering India. It has asked for a uniform 35% tax on all companies, domestic and foreign.

Petrowatch learns lobbying continued right up until the last budget on 27 February when a delegation of oil officials pressed the case in a meeting with finance ministry officials. To no avail.

Finance ministry officials argue that if the oil sector is given special treatment, other sectors such as telecoms and automobiles would ask for similar beneficial tax rates for foreign investors. The finance ministry cites loss of revenue arguments as the principal reason against a cut in the rate of corporate tax for foreign investors.

Luckily for the oil ministry it is on much firmer ground on the issue of MAT. It argues that India has made a tax holiday commitment to international oil companies during roadshows to promote NELP.

Oil officials argue it would be a damning indictment if they were to go back on this commitment.

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