1. Budget 2017: From reforms to GST, energy sector eyes a stable tax regime from FM Arun Jaitley

Budget 2017: From reforms to GST, energy sector eyes a stable tax regime from FM Arun Jaitley

From Tax Administration Reforms Commission, inclusion of petroleum products into the GST regime to lowering of the corporate tax rates will be key factors in bolstering the sector in the upcoming fiscal.

By: | New Delhi | Updated: January 25, 2017 11:40 AM
From Tax Administration Reforms Commission, inclusion of petroleum products into the GST regime to lowering of the corporate tax rates will be key factors in bolstering the sector in the upcoming fiscal. (Representative image) From Tax Administration Reforms Commission, inclusion of petroleum products into the GST regime to lowering of the corporate tax rates will be key factors in bolstering the sector in the upcoming fiscal. (Representative image)

With less than 10 days to go for the Union Budget 2017, the Economic Survey will be tabled in Parliament next week followed by the fiscal policy proposals as part of the Finance Bill 2017. The annual progress and proposed policy initiatives for the energy sector will be highlighted. From Tax Administration Reforms Commission, inclusion of petroleum products into the GST regime to lowering of the corporate tax rates will be key factors in bolstering the sector in the upcoming fiscal, according to The Indian Express report. From the perspective of the energy sector, Gokul Chaudhri and Anuj Agarwal of BMR & Associates LLP discuss what went well in 2016 and what did not.

The good

“India announced its new hydrocarbon exploration & production policy and 67 small discovered fields are being made available for private sector participation now. Over 40 domestic and international players participated in the bid round, but given the limited size of the assets on offer, and prevailing international climate for exploration, the oil majors expectantly stayed away. Nevertheless, the initiative will revive some domestic exploration activity. This initiative alone is unlikely to help achieve the target of reducing oil imports by 10 per cent by 2022 and requires far more bold action, including restructuring of the oil industry with pricing and allied regulatory reforms that encourage the development of deep-water fields.

You may also like to watch

“In areas of clean energy as well, India has made some gains. In solar power, over 150 per cent increase in generation capacity in the past 2 years was witnessed, with about $2 billion in foreign direct investment. Azure Power, a domestic entrepreneurial venture, for instance, listed its shares on New York Stock Exchange, with its wide portfolio of solar projects aggregating over 1,000 Mw. The conclusion of the climate accord in Paris and India’s commitment auger well for the policy thrust that is needed for capacity building. The laying of the foundation stone of International Solar Alliance headquarters in Gurgaon, again reflects India’s gains,” they opined.

The not-so-good

“The power sector has an investment potential of over USD200 billion, and the broader energy sector aggregates even more in terms of investment need. The gas infrastructure build-up is equally important. The expansion of Petronet LNG terminal capacity to 17.5 million tonnes illustrates the success of infrastructure building. The lack of pipeline access to its Kochi terminal reflects the trouble, if the supply chain for gas is interrupted. The question is whether the existing policy framework, with clarity and certainty in tax policy, is sufficient for attracting investment?,” they wondered.

You may also like to watch

What went wrong

“The upstream industry continues to be dogged with legacy tax troubles. The incentive for tax holiday for explorers was denied to discoveries of natural gas on the grounds that the definition of mineral oil in the tax provision was ambiguous. The then finance minister had assured Parliament and investors that the court decision would be accepted by the revenue department. Thereafter, in spite of explicit judgments from the High Court, the revenue department continues its litigation to the Supreme Court. This not only belies the faith of investors in the policy and public tender pronouncements but highlights the lack of appreciation that absence of tax certainty impacts investment. The exclusion of petroleum products, including natural gas, from GST continues to be a major impediment for the sector,” they said.

What could be of help

According to the experts, stronger checks and balances are needed, including measures outlined in the work of the Tax Administration Reforms Commission to ensure a stable and predictable tax regime. Infrastructure projects, including the energy industry, is capital-intensive with a long-gestation period. Stability of tax provisions and certainty in tax outcomes are essential.

You may also like to watch

Therefore, sticking to the PSCs, which were concluded by the government when tax holiday provisions were alive, is important, similar to what the government has done in case of investments from Singapore and Mauritius, they said.

Inclusion of petroleum products into the GST regime is equally important to ensure the tax credits are not lost and the fuel prices are not made expensive with input tax costs. The appreciation that natural gas is more of an industrial fuel and input to the power and fertiliser sector means that the cost of energy can be kept efficient only if natural gas is included in the tax credit chain of GST, they said.

Finally, with the sunset of tax holiday, it is important that the lowering of the corporate tax rates to the promised 25 per cent is achieved, partially in 2017 and fully in 2018, the said.

  1. No Comments.

Go to Top