‘Taxation remains one area of concern on which the government is working so that domestic production becomes more viable’
‘We have to keep our domestic production more competitive in comparison to imports’
New Delhi: Petroleum Secretary Tarun Kapoor has assured the oil and gas exploration and production industry that the government is working on addressing the concerns pertaining to taxation and will do everything that is necessary to make domestic production viable. At the launch of bid round-3 of Discovered Small Fields (DSF), Kapoor stressed on the government’s intention to keep domestic production of crude oil and gas more competitive in comparison to imports.
“Taxation remains one area of concern on which the government is working so that domestic production becomes more viable. With the recent surge in crude prices, viability has improved. But then, we have to keep our domestic production more competitive in comparison to imports. Whatever needs to be done in that direction, we will do,” said the Petroleum Secretary.
Why is taxation an issue for domestic oil and gas producers?
Upstream companies in India, which are operating pre-New Hydrocarbon Exploration Policy (NELP) and nomination oil and gas fields, face a heavy tax burden under the production sharing contract (PSC). Even though tax reliefs have been extended to NELP and HELP blocks, the government is yet to reform the taxation norms in pre-NELP and nomination blocks, which contribute to 95 percent of India’s total crude oil production.
India is the only country that levies two sets of taxes — cess and royalty. State-run Oil & Natural Gas Corporation (ONGC) pays 10-12.5 percent royalty to the Centre on oil produced from offshore fields. State governments levy 20 percent royalty on the price of oil produced from onland fields. In addition, there is 20 percent ad-valorem oil industry development (OID) cess on the price that producers get. Industry stakeholders have often voiced concerns to the government regarding production being unviable due to the heavy taxes levied on them.
E&P ecosystem should rely on Made in India: Petroleum Secretary
Commenting on the infrastructure required to undertake oil and gas exploration and production, the Petroleum Secretary said, “It will be very useful if people operating in one area can come together to jointly build infrastructure or even certain infrastructure building organisations can be roped in to build infrastructure that will be common to save cost.”
“An ecosystem needs to come up in the country where service providers can provide equipment like oil rigs so that as more and more discoveries come in and expansions are undertaken, we are able to do it using domestic resources,” said Kapoor.
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