Oil and gas producers call for tax reforms in the upcoming Budget

Seek relief from state levies, Customs duties, pitch for single window clearance system

In the run-up to the Budget, upstream oil and gas companies have called for a review of the taxes levied on older oil blocks, which account for nearly 90 per cent of domestic production, according to officials from two large exploration and production (E&P) firms.

 

The removal of a number of cesses imposed by states, exemption from Customs duty on a larger set of imports, and greater ease in exploration are among the key issues raised during discussions with the government.

 

In meetings with the finance and petroleum ministries, the industry has urged the government to align taxes imposed under previous regimes, such as New Exploration Licensing Policy (NELP) and Pre-NELP, on a par with the current Hydrocarbon Exploration and Licensing Policy (HELP) regime.

 

The NELP replaced the nomination regime in 1999 and remained in place until 2017, when the HELP regime came into force. The industry has asked the government to rationalise taxes from the current levels of over 60 per cent to 40 per cent, in line with global benchmarks.

 

A key step towards this would be for the government to rationalise royalty rates across regimes, and roll back the 20 per cent oil industry development (OID) cess that pre-NELP and nomination blocks attract, an official at an E&P major said on condition of anonymity.

 

“In these two categories of blocks, the cost of production per barrel is higher, while the net profit per barrel is lower, owing to the OID cess, higher royalty payments, and profit split with government nominees," he stressed.

 

The Centre has been asked to intervene with states to reduce or scrap land taxes in Assam and Rajasthan, and the consent for operation fees levied by Andhra Pradesh’s Pollution Control Board, another official said.

 

The demand to bring oil and gas sales under the GST framework to adjust input tax credit has also received a fresh impetus from the private sector in recent months, he said.

 

Meanwhile, industry players have welcomed the scrapping of the Special Additional Excise Duty (SAED) or windfall tax, which was in force for 29-months, in early December. The levy had raised the tax burden by an additional 10 per cent on average. India’s E&P sector is dominated by two government companies -- Oil and Natural Gas Corporation and Oil India ---that account for 71 per cent and 9 per cent of India’s total crude oil production. Cairn Oil & Gas, part of the Vedanta group, and RIL subsidiary Reliance Petroleum are the two major private sector upstream companies.

 

Ease of investments

 

India imports 87 per cent of its crude oil requirements. While the crude oil import bill shrank to $139.8 billion in FY24, down 13.3 per cent from $161.4 billion in FY23, this reduction was mostly due to major discounts on Russian crude oil. With an aim to progressively reduce import dependence, the government wants $100 billion in investments in the E&P sector by 2030, particularly in key offshore areas, such as the Andaman Sea. However, it has struggled to attract sufficient interest.

 

The country has seen an aggregate capital expenditure of $2–3 billion, far short of the $15–20 billion required to achieve the government’s targets, said industry insiders. In July, Petroleum and Natural Gas Minister Hardeep Singh Puri announced a joint working group comprising representatives from private E&P operators, national oil companies, and the government to improve ease of doing business in the sector. The group was expected to submit its recommendations on policy revisions within eight weeks. However, officials said work was ongoing in this regard.

 

Industry players have also called for a single window of clearance or a centralised coordinating body to streamline exploration processes. They advocate delegating powers to district forest officers, as is done in other mining industries, and revisiting the policy that prohibits exploration in mining lease areas. 

PM to meet economists, experts to elicit views on Budget 

 

Prime Minister Narendra Modi will meet eminent economists and sectoral experts on Tuesday to elicit their views and suggestions for the upcoming Budget, a senior government official said. Union Finance Minister Nirmala Sitharaman is scheduled to present the Budget for 2025-26 in the Lok Sabha on February 1, 2025. Besides economists and sectoral experts, Niti Aayog Vice Chairman Suman Bery and other Niti Aayog members will also attend the meeting.

 

(With inputs from PTI)