Deora wants tax breaks on natural gas output

Petroleum Minister Murli Deora on Monday asked Finance Minister Pranab Mukherjee to restore tax breaks on natural gas production as is given for crude oil.

Deora, who met Mukherjee on Monday afternoon to present his ministry's Budget wishlist, also discussed the deregulation of fuel prices.

"We appealed to him that the seven-year tax holiday from payment of income tax should also apply to natural gas as is available on crude oil production," he told reporters after the meeting.

He also pressed for giving declared goods status for natural gas to end the differential sales tax in states.

The minister also took up the issue of deregulating petrol and diesel prices but it isn't clear if the government is looking at freeing fuel prices, given that crude oil prices have breached the $72 a barrel mark.

Deora said the rise in crude oil prices is a matter of concern and solutions need to be found. State retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum may together lose close to Rs 60,000 crore (Rs 600 billion) this fiscal if retail prices are not changed with the hardening of crude oil prices.

"I cannot say what the finance minister will do in the Budget. . . it is for him to decide (on the issue)," he said, adding that the options before the government included raising petrol and diesel prices, giving oil bonds to the oil companies to make up for the revenue loss and asking upstream firms like ONGC to pitch in.

Freeing fuel prices at this moment may lead to a sharp increase in petrol rates. If oil firms are not given freedom to raise prices in sync with cost then a mechanism to compensate them for selling fuel at controlled rates would have to be devised.

Deora said the finance minister was 'sympathetic' to the demand for restoration of income-tax holiday for gas.

Though the Cabinet had guaranteed exemption from payment of income-tax on oil and gas production from areas awarded under the New Exploration Licensing Policy, the finance ministry last year said the fiscal incentive are only meant for oil.

This stand, which ran contrary to the government's written commitment while attracting investment under NELP since 1999, led to a damp squib response to last auction round and has led to postponement of current round.

The finance ministry believes that the term mineral oil for the purpose of giving tax holidays includes production of only crude oil but it choose to ignore the fact that same tax incentives under the same act have been promised to producers of gas from below the coal seams (coal bed methane) where no oil can ever occur.