Petroleum minister M Veerappa Moily has urged finance minister P Chidambaram to rework the provisions of the Direct Taxes Code Bill, 2013, so that investors in oil and gas exploration continue to enjoy tax holidays.
Moily has said that exploration and production of oil and gas is a high-risk enterprise and the lack of adequate capital has restricted exploration to just 22 per cent of the country’s total land mass. He has urged the finance minister to ensure that tax benefits continue for all utilities involved in exploration activities even to projects which have not begun commercial production.
“It appears that as per the provisions of draft DTC bill, tax holidays would be restricted to blocks which have commenced commercial production on or before March 31, 2015. Tax benefits should be extended under Section 801B(9) of the Income Tax Act even for all blocks awarded under NELPs or coal bed methane where commercial production has not commenced,” Moily wrote in a letter to the finance minister.
Under the I-T Act, crude oil producers get seven-year tax-free profits only if they start production from any block licensed before April 1, 2011. Only refiners who have begun operations before March 31, 2012 are eligible for the same tax break. The apprehension is that once DTC is operational, tax benefits might not be extended to any other sector except infrastructure.
The expenditure incurred by the exploration industry on capital assets in course of development and production operations are eligible for depreciation under Section 32 of the DTC bill, but the legislation does not contain any transition provision to provide for deduction for un-depreciated value of capital asset, the oil minister reasoned.
The minister said the provision regarding setting off losses of business of oil or natural gas from the profit of other business of the assessee should continue as per the current provisions of the I-T Act. He suggested that relevant provisions of DTC should be amended so that losses on sale of assets are allowed to be set off against regular income.
Moily also said that there should be an mechanism to appeal against the decision of the