VAT sops to IOCL Paradip refinery hits Odisha revenue growth

The deferment of VAT on products of newly commissioned Paradip refinery of Indian Oil Corporation (IOCL) has cost the revenue collection in Odisha in terms of tepid growth in commercial taxes earnings.

According to a note prepared by Saswat Mishra, commissioner, commercial taxes, Odisha government, the commercial tax collection upto August 2016 stood at Rs 5530.95 crore representing a growth rate of 4.02 per cent.

This meagre growth is particularly perturbing when seen against the target of the state commercial tax department to garner Rs 17,500 crore revenue by clocking a growth rate of 16 per cent on annualised basis during 2016-17.

Mishra has attributed the low growth rate in commercial tax collection to deferment of VAT availed by the Paradip refinery of IOCL. He said, had the VAT deferment, which amounted to Rs 531.96 crore upto August, been allowed to the oil refinery, the commercial tax collection would have grown by 14.02 per cent till now.

He said, the deferment of VAT on IOCL Paradip refinery products is expected to pull down commercial tax collection in the state by Rs 2000 crore in the current financial year. Stating that this accounted for 11.42 per cent of the total collection target for 2016-17, he rued that there is no alternative sources in sight to make up the shortfall.

In addition to the VAT deferment, changes in the marketing strategy of IOCL has also hit the revenue collection in the state. While IOCL was earlier supplying petroleum products to the markets in southern Odisha such as undivided Koraput district from its Vizag depo located in Andhra Pradesh, it has shifted the source of supply to Jatni depo in Odisha to take advantage of the VAT deferment benefits following commissioning of the Paradip refinery.

Similarly, Mishra pointed out that the state's move to increase tax rate on petrol and diesel from 23 per cent to 26 per cent has not reflected in higher revenue collection as IOCL, with its status as the lead Oil Marketing Company (OMC) for Odisha, has the lion's share of the market and not paying VAT because of the deferment benefit availed by it.

It may be noted Odisha had agreed to defer collection of VAT on the products of IOCL's Paradip refinery for eleven years from the date of commissioning of the project to facilitate its implementation a decade ago. The IOCL refinery was commissioned in February, this year.

"The impact of deferment by IOCL is substantial and is unlikely to be compensated from other sources of revenue", Mishra noted.