Outcome from Jaitley2015

76,000 crore allocated to PSUs for project

expansion in overseas and domestic.
Subsidy reduced to 30,000 crore from
60,000 crore.
2400 crore for strategic petroleum
reserve in Vishakhapatnam, Pundoor,
Mangalore.
Education cess on crude oil import is
removed.

Impact
Increase in road cess on petrol and
diesel has been completely offset by
the decline in basic excise duty and
removal of education cess. Hence,
there will be no impact.

As petrol and diesel imports are
marginal, exemption in special
additional customs duty will not have
any major impact.

 No relief for E&P

companies as they
cannot take CENVAT
credit of service tax
incurred for
exploration and
production

Half the custom duty

on isoprene and
liquefied butane
product.
Rs 4 per litre into Road
Cess

 Government announces oil subsidy of Rs

300 billion for 2015-16.
Change in excise duty structure on petrol
and diesel: Reduction in CENVAT by Rs 3.53.7 per litre, increase in road cess by Rs 4
per litre, removal of 3 per cent education
cess levied on overall excise duty
Exemption of special additional customs
duty on petrol and diesel, in excess of Rs 6
per litre.

 No relief for E&P

companies as they
cannot take CENVAT
credit of service tax
incurred for
exploration and
production

Half the custom duty

on isoprene and
liquefied butane
product.
Rs 4 per litre into Road
Cess

 Government announces oil subsidy of Rs

300 billion for 2015-16.
Change in excise duty structure on petrol
and diesel: Reduction in CENVAT by Rs 3.53.7 per litre, increase in road cess by Rs 4
per litre, removal of 3 per cent education
cess levied on overall excise duty
Exemption of special additional customs
duty on petrol and diesel, in excess of Rs 6
per litre.

Expectations from Arun

Jaitely w.r.t O&G Sector

Impact
Increase in road cess on petrol and
diesel has been completely offset by
the decline in basic excise duty and
removal of education cess. Hence,
there will be no impact.

As petrol and diesel imports are
marginal, exemption in special
additional customs duty will not have
any major impact.

Expectations from Arun

Jaitely
The tax holiday provisions were retrospectively
amended from 1999-2000 to specify that all blocks
licensed under a single contract shall be
considered as a single undertaking. This means
that the period for which tax holiday is available
and the quantum calculation are done at contract
level. This amendment is regressive and
significantly dilutes the benefit available. The
definition of undertaking should be amended to
extend the benefit of tax holiday provision to each
field within a contract area.

Expectations from Arun

Jaitely
Further, E&P companies incur huge exploration costs
in the initial years. These expenses are tax deductible,
resulting in losses or negligible profits. Thus, most
companies are not effectively able to claim tax holiday
benefits. One recommendation is that the existing
period of tax holiday of 7 years should be extended to
10 years for companies engaged in production of
mineral oil. It is also suggested that the benefit should
not be restricted only to blocks licensed under a
contract awarded till 31 March 2011. The benefit
should be extended till 31 March 2017.

Expectations from Arun

Jaitely
Further, currently, the tax holiday provisions apply
only to specified natural gas and coal bed
methane blocks (CBM) as natural gas and CBM
are not considered to fall within the definition of
mineral oil. The proposed Model Revenue
Sharing Contract (MRSC) has defined the term
petroleum to include shale oil, shale gas and
coal bed methane. Since the MRSC will cover
natural gas and coal bed methane as mineral oil,
requisite amendment should be brought in the tax
laws to benefit the existing blocks.

Expectations from Arun

Jaitely
As far as oilfield service providers who are taxed
on presumptive taxation basis (i.e.,10% of gross
receipts are deemed income) are concerned, the
issue whether the statutory taxes like service tax
recovered by non-residents from Indian parties
should form a part of the gross receipts has been
a subject matter of long drawn litigation. It is
recommended that a clarification is issued that
the government dues which are recovered by oil
field service providers should not form a part of
the gross receipts since there is no income
element therein.

Expectations from Arun

Jaitely
In 2010, an amendment was introduced that
excluded technical services from the scope of
presumptive taxation and subjected them to net
basis taxation. This has resulted in onerous
compliance burden (such as maintaining books
and getting accounts audited) on several oilfield
service providers. Also, there is a lot of litigation on
this issue which activities constitute technical
service and which fall within the exclusion
provided (for certain activities) under domestic tax
laws and applicable tax treaty. It is recommended
that this amendment is reversed.

Expectations from Arun

Jaitely
The tax laws provide for a weighted deduction ie
investment-linked incentive of 100% deduction of
pre-commencement capital expenditure is
allowed for laying and operating a cross country
natural gas or crude or petroleum oil pipeline
network for distribution, including storage
facilities. In order to support the economic growth,
it is recommended that the investment linked
incentive be extended to dedicated pipelines and
intra-city & intra-state gas distribution networks.

Expectations from Arun

Jaitely
On the indirect tax front, the Union Budget
would be released in the midst of
Governments endeavour to bring in Goods
and Service tax (GST). There is anticipation
for announcement of the possible time lines
for implementation of GST and the draft GST
laws. Given that the Government is
committed to introduce GST from 2016, the
Industry is hopeful that CST would be
completely phased out in this Budget or
proposed CST rate of 1%.

Expectations from Arun

Jaitely
A long standing industry demand has
been inclusion of natural gas, which
is essential for Power and fertilizer
projects, as declared goods so that
VAT rate on such goods is subject to
a ceiling rate of 5%.

Expectations from Arun

Jaitely
Considering the huge capital
investment and uncertainty involved
in the exploration activity, service
tax leviable on exploration activities
should be withdrawn or refund
provision should be granted.