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Infrastructure status sought for oil exploration

Infrastructure status will exempt E&P business from paying income tax for 10 years, report Deepak Joshi and Gaurav Choudhury.

india Updated: Dec 27, 2006 19:19 IST

The petroleum ministry has sought infrastructure status to exploration and production (E&P) business, liquefied natural gas import and re-gasification projects as well as cross country pipelines for crude, gas and petroleum products.

Infrastructure status will exempt E&P business from paying income tax for 10 years.

At the same time, the petroleum ministry has sought elimination of service tax on survey and exploration of mineral services as it "inadvertently levies tax on core activity of E&P activities. Besides companies under New Exploration Licensing Policy are entitled to set off taxes as part of "cost petroleum" reducing correspondingly government share, it added.

In a detailed representation to the finance ministry, it has suggested that infrastructure status similar to the power and telecom sectors should be made available to attract investments. The pipeline sector is expected to witness $15 billion investments in next few years.

"Domestic E&P investments are the need of the hour considering the growing oil import dependence of the country. Similarly, pipeline projects once implemented, provide cost efficient and environmentally friendly transportation of hydrocarbons, which essentially increase availability of roads, highways and rail system by simultaneously freeing up crucial space for other transport users of road or railways," says a note prepared by the petroleum ministry.

Outlining its reasons for seeking infrastructure status, it pointed out that facilities put up in the oil sector are no less than other infrastructure sector projects as they service the energy needs of the nation. "Allowing them the benefit of infrastructure projects will facilitate creation of additional resources, which can be utilised for further development of the oil sector to service the needs of a growing economy," the ministry stated.

Taking note of the huge investments required for fuel quality upgradation projects of refineries, the petroleum ministry has proposed 100 per cent depreciation on capital expenditure in these projects. The revenue inflows from fuel quality upgradation are not commensurate with investments. The return from these investments would not be commensurate with the costs of the investments. The projects for fuel quality upgradation are mandated under 'auto fuel policy'.

The ministry also wanted basic customs duty reduced on projects imports to zero for crude, product and gas pipelines and CNG/auto LPG infrastructure. To promote use of environment friendly natural gas as fuel, the ministry demanded 'declared Goods' status so that the fuel attracts a uniform rate of 4 per cent central sales tax instead of varied taxes rates across the states, going as high as 20 per cent in some cases.

Email Deepak Joshi and Gaurav Choudhury: djoshi@hindustantimes.com, gaurav.choudhury@hindustantimes.com