COMPANIES

No Data Found

NEWS

No Data Found
Advertisement
Budget 2022: Oil and gas industry seeks tax incentives to boost investment

Budget 2022: Oil and gas industry seeks tax incentives to boost investment

Policy and tax interventions are the need of the hour for encouraging investments and ease of doing business in the sector.

Gaurav Moda and Neetu Vinayek
  • Updated Jan 30, 2022 7:29 PM IST
Budget 2022: Oil and gas industry seeks tax incentives to boost investmentIndia's oil and gas industry has set high hopes on the upcoming Budget.

In the last few years, the Government of India (GoI) has tried to revamp policies concerning oil and gas exploration and production in India to give boost to domestic oil and gas production. Further policy and tax interventions are the need of the hour for encouraging investments and ease of doing business in the sector. With an intent to provide further push to the sector, India's oil and gas industry has set high hopes on the upcoming Budget.

Advertisement

Some of the expectations from the upcoming Budget are as under:

  • Review of domestic gas pricing regimes to make capital investments in new  exploration and development projects more attractive for upstream companies.
  • Clarity on medium term transport fuels policies given concurrent push for CGD Projects (CNG), biofuels (ethanol, methanol, CBG), LNG, EVs.
  • CGD Regulations should permit sharing of facilities/infrastructure in the adjoining GAs not only to expedite roll out but also to enhance economic value to such projects.
  • Given global push for energy transition and repositioning/ restructuring of their oil and gas portfolios by major international oil companies (IOCs), India may like to review its upstream policies (HELP/OALP etc.) to create higher level of attractiveness for IOCs to look more seriously at Indian upstream sector.
  • Indian oil and gas companies are moving towards digitalisation and ESG/ decarbonisation. GoI should consider providing incentives and policy enablers to further accelerate such shifts including access to green funding.

Also Read: Budget 2022: Key expectations of healthcare and pharma industry

Advertisement

Tax incentives: Exploration and production of oil and gas requires investment of capital and bears economic risks for the project. Thus, the players in this industry hope for tax incentives by bringing back tax holidays to make such investments lucrative. Considering the significant capital outlay required for investment in infrastructure, the government may also consider providing investment-linked incentives on capital expenditure. 

Concessional tax regime:

  • Oil and gas exploration and production companies are not entitled to concessional tax regime applicable to manufacturing companies, whereby profits of manufacturing entities are taxable at 15 per cent. The government may consider extending tax regime to oil and gas exploration and production companies too.
  • Further, the current concessional tax regime applicable to new entities has sunset clause of March 31, 2023 to start manufacturing and production of eligible article or things. Considering the disruption COVID has created, the industry would expect that such sunset clause may be extended at least till March 31, 2025. This will also increase return on investment of the players engaged in manufacturing or production of equipment required for oil and gas sector.

GST: The government may further consider the legacy industry request of bringing natural gas under the GST ambit which will allow cross utilisation of tax credits, relieve burden from companies and help curb inflation. Though GST is not part of Budget per se, the government can provide a broad roadmap as to how they view the transition to GST.

Advertisement

Given this backdrop, the government has a demanding task with respect to appeasing global players. While economy is still reviving from the second wave of the pandemic, one may expect that at least some of the above issues would be well addressed in the upcoming Budget.

(Gaurav Moda is Energy Sector Leader and Neetu Vinayek is Partner and Infrastructure Leader at Ernst & Young LLP. Hiten Sutar and Palak Agrawal, tax professionals at EY, also contributed to this article.)

Also Read: Economic Survey: All eyes on GDP projection despite recent misses

Published on: Jan 30, 2022 7:26 PM IST
Post a comment0