In his Budget speech Finance Minister Pranab Mukherjee, said, โI propose to extend the tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas."
On the face of it, Mukherjeeโs speech seems to be benefiting the gas producers, but the devil was in the details.
Rahul Garg, ED of PwC, said, โWhat has been done retrospectively is another amendment of the section where the tax holiday was being computed with reference to each well and there the amendment has been made retrospectively from April 1, 2000.โ
So, if the analysts are right, is RIL's massive gas production from KG Basin D-6 block, which is an NELP-I block, liable for taxes. It seems that market thinks so and that is why RIL's stock tanked about 4 per cent before recovering and closing the day down 2 per cent. However, the tax liability will now depend on the courts where the matter is yet to be decided and thatโs where the confusion lies for Reliance.
But what happens to ONGC's plan, the biggest oil and gas explorer in the country?
D K Sarraf, director (Finance) at ONGC, said, โThere would be no immediate impact on ONGC. Earlier we thought the definition of undertaking is a well but now itโs a field."
As the confusion leaves room for stretching the ongoing litigation further, the policymakers seem happy about the clarity given for the future.
SSN Moorthy, chairman of CBDT, said, โAt least you should be happy about the prospective clarity given on the issue.โ
Even the petroleum ministry seems to be convinced about the clarity given in the Budget.
R S Pandey, petroleum secretary, said, "Yes NELP has been launched already, but the road show was deferred because investors had sought clarification. Through this Budget, the clarification has come, so we will now go ahead with the road show and NELP-VIIII."
Thereโs no doubt that RIL made the biggest gas discovery in KG Basin and so if the analysts are right, then the tax component too would be huge.
But itโs not just RIL, other gas producers too must be worried. Hence, it will not augur well for the sector and probably Pranab Mukherjee may have to come out with another clarification when the finance bill is debated in the parliament.