 "Odisha wants review of MoU with IOCL for Paradip refinery")
The matter was also raised during a recent meeting of Union minister for petroleum and natural gas Dharmendra Pradhan with chief minister Naveen Patnaik when the former called on Patnaik to extend formal invitation for the inauguration of the refinery on February 7.
The state fears the project will knock off whopping Rs 2,000 crore per annum from its basket of sales tax collection on petroleum products.
This is because Odisha had agreed to defer collection of sales tax on the products of the Paradip refinery for eleven years from the date of commissioning of the project when it signed the MoU with IOCL in February, 2004.
Besides, the state government has allowed 30 years exemption on CST collection to the project which meant the state would not get any revenue from the sale of petroleum products from this refinery outside the state.
The state government now seeks review of the MoU on the ground that the proposed capacity of the refinery at the time of signing the agreement was pegged at 9 million tonne per annum. But it has subsequently been increased to 15 million tonne.
Similarly, the refinery was supposed to be commissioned much earlier. Delay in implementation of the project has pushed back the payback time of deferred taxes by few years.
The government is worried how it would manage its finances with annual Rs 2000 crore deficit in tax collection from petroleum products over the next 11 years. It is particularly hard for the government when it is witnessing muted growth in tax collection in other sectors, particularly from the mining industry, which is going through a rough patch.
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IOCL, on the other hand, is no mood for a review of the MoU. "First, the loss of revenue is only notional as the company will pay back the taxes after 11 years albeit without interest on it. Second, the increase in capacity no way increases the burden of this notional revenue loss as the product exposure of the company in the Odisha market may not go up significantly from the present level with the enhancement of refinery capacity", argued a company official.
As the state had agreed to give all these concessions at the time of signing MoU to facilitate the project, it should not go back on its words and seek a review of the whole thing now, he added.
IOCL, at present, has about 65% share of the petroleum products market in Odisha, which earns about Rs 3000 crore from this sector towards sales tax, accounting for nearly 25% of the state's total VAT/sales tax collection annually.
As the IOCL's Paradip refinery intends to cater to the eastern and southern markets, the deferment of sales tax collection on the company's products in the state is projected to bring down the revenue from this source by Rs 2000 crore per annum for next eleven years.
In fact, according to a state finance department assessment, the state will lose about Rs 25000 crore revenue from this project over next 11 years which would only be redeemed after this moratorium period without any interest obligation.
This loss could now be even higher as the state has hiked sales tax rate on petroleum products twice in last one year- first from 20% to 23% in December 2014 and then to 26% in January, 2016.
The state government has formed a high level committee headed by additional chief secretary (finance) to study the revenue loss on account of tax sops to the Paradip refinery and how to cushion the impact in consultation with IOCL and Central petroleum ministry authorities.
It may be noted the IOCL's 15 million tonne refinery at Paradip is scheduled to be dedicated to the nation by Prime Minister on February 7.