Political tussle hots up over withdrawal of tax sops to IOCL refinery

Patnaik should not harm the state's interest by withdrawing tax sops to the IOCL refinery: Pradhan

The row over withdrawal of tax sops to 15 million tonne petroleum refinery of Indian Oil Corporation (IOCL) at Paradip by the Odisha government, has taken a new turn with Union petroleum minister Dharmendra Pradhan attributing the cause for this action to political vendetta by chief minister Naveen Patnaik following BJP’s impressive show in the recent panchayat elections in the state. 

“The ruling Biju Janata Dal (BJD) and chief minister are upset with the panchayat election results. You (chief minister Naveen Patnaik) can be angry with me, my party or the prime minister, but you should not harm the state’s interest by withdrawing tax sops to the IOCL Paradip refinery”, Pradhan said. 

He said, the state government’s decision to review an old MoU with IOCL (the pact was signed in 2004) and withdraw tax sops to the refinery will shake the investor’s confidence and hit the flow of investment to the state badly. “By this action, the state government has undermined the opportunity of job creation for the youth of Odisha”, he added. 

The cabinet decision to withdraw the tax sops to the refinery would have passed off as a measure to protect the fiscal interests of the state, but for the timing of the action, which came days after the panchayat elections in the state where the ruling BJD put up an uninspiring show and lost about 180 zilla parishad seats while BJP, under the stewardship of Pradhan, increased its tally by more than 8 times compared to the last rural local body polls in 2012. 

“The withdrawal of tax concession came a year after the commissioning of the project in February, 2016, that too when a high level committee constituted with senior officials of the Centre, state and IOCL as members is on the job to resolve the disputes. If it was only for fiscal concerns, the state could have acted immediately after the project went on stream”, pointed out a political analyst. 

Interestingly, at the time of launching of the project, the BJD had claimed its share of glory saying the project was possible because of the state government’s efforts to facilitate land acquisition and grant tax sops. 

“But in the last one year, lot of things have changed”, says Rabi Das, a senior journalist and political observer. “With Pradhan emerging as the chief ministerial face of BJP and the party establishing itself as the main challenger of BJD for the assembly elections in 2019, pushing the Congress to the third spot in the process, the Paradip refinery issue has become a hot political potato”, Das said. 

Through this move, the state government intends to embarrass Pradhan, as the project falls within the ambit of his department. Pradhan had promised to bring in Rs 1.25 lakh crore of investment in the petrochemical sector revolving around the refinery. Now all these investments are in jeopardy after the state government’s move, which would deny Pradhan the opportunity to showcase his achievement among the state’s electorates, he added. 

Besides, by arguing that gains from IOCL Paradip refinery are meagre compared to the loss of revenue on account of tax concessions, the ruling BJD has opened up a flank to attack Pradhan politically by portraying him as anti-state interest if he criticises the state action and backs IOCL. 

In fact, BJD spokesperson Pratap Dev, while defending the government decision on Paradip refinery, said, not many Odias are employed in the project. He rejected the suggestion of any link between the outcome of the panchayat election and the government move, saying the tax sop dispute with IOCL dates back to 2011 when the Hota Committee on state revenue augmentation had recommended for review of the IOCL MoU soon after the Central government deregulated the petrol prices. The state advocate general had also opined for MoU review in 2012. He said, the state government had served show cause notice to IOCL on December 29, 2016 and the cabinet decided to withdraw the sops last week after IOCL submitted its response on January 17, this year. 

As per the MoU between the Odisha government and IOCL signed in 2004, the former was to give interest free credit or allow deferment of collection of sales tax on Paradip refinery products sold within the state for a period of 11 years from the date of commissioning of the refinery. The state government, however, had opted for the latter option. 

Besides, deferment of sales tax, the project was allowed 30 years exemption on CST. It was also granted other concessions like exemption of electricity duty and entry tax on the crude feed and different material and equipment deployed for the construction of the refinery. 

The state has only withdrawn the sales tax concession granted to the project without touching the other rebates availed by it, Dev said. Stating that the tax sops were withdrawn because IOCL had violated the terms of MoU, he said, in the agreement, it was mentioned that the project would be commissioned 2009-10. But the project went on stream in 2016, pushing back the payback period of deferred tax by six years. 

Similarly, though the capacity of the project was pegged at 9 million tonne in the MoU, IOCL later scaled up the capacity to 15 million tonne. 

However, a senior IOCL official attributed the time lag in project implementation to delay in land acquisition, stoppage of work due to two back to back cyclones and law and order problems at the project site. He claimed the state had been duly apprised of the capacity enhancement. 

The state has estimated that sales tax deferment will result in a revenue loss of Rs 2,000 crore annually which is particularly hard when it is witnessing tepid growth in tax collection in other sectors, particularly from the mining industry, which is going through a rough patch.