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Natural gas tax breaks to put extra burden on tax revenues

June 1, 2009

The proposed tax breaks on natural gas production is likely to cost around Rs 40,000 crore to the government, as indicated by the finance ministry.

Last year, the finance ministry had conveyed that the income tax exemption guaranteed by the Cabinet, on the production of oil and gas from the areas allocated under New Exploration Licensing Policy (NELP), was only for oil production and not for gas. This resulted in a subdued response to the last leg of the auction and delaying of the current auction process.

The revenue secretary is believed to be negotiating with the petroleum minister for a grant of seven years tax break on natural gas production.

It is expected that the tax breaks to natural gas producers like Reliance Industries will put a burden of around Rs 40,000 crore on the tax revenues.

But industry experts opined that the figure is not a realistic one, as it will take around four years for the companies to recover their investments and only after this recovery income tax can be levied. Apart from this, at the estimated revenue of around $4.5 billion, the balance three years will fetch around $1.5 billion as tax to the government.

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