Bina puts MP finances under strain

The Bina refinery is feeling the impact of the Value-Added Tax (VAT) Act. And the refinery will put more strain on the MP exchequer.

To compensate for losses on account of tax exemptions given to the refinery earlier, the MP government will now have to issue bonds and earmark a hefty amount as budgetary allocation to the department on industry.

The Cabinet recently approved amendments to the deal signed with the refinery. Under new VAT provisions no company, private or public, is allowed to take VAT exemptions. As a result Bharat Oman Oil Ltd, the promoter of the refinery, will have to pay VAT.

The state government had given the firm the facility of commercial tax deferment facility of Rs 250 crore per annum for 15 years from the start of production.

"The BORL will have to deposit VAT but it can reclaim the amount from the industry department within three days. Special budgetary provisions will be made for this," the state cabinet decided.

Similarly the BORL will have to pay works contract tax and will reclaim it as grant. "A separate budgetary provision will be made for the purpose," said a government source. The state industry department will nominate MP Trade and Facilitation Corporation (TRIFAC) "� an arm of the state industry department for the purpose.

The state government will issue bonds on prevailing market rates and BORL, in turn, will provide full guarantee to the nominated entity of the state government for principal amount. of the bond and also the interest rates payable by BORL from sixteenth year onwards after commercial production of the refinery.

While State government will offer counter-guarantee to the BORL payment of interest for the first 15 years. Both will bear the expenditures of issuance of bonds in ratio of 50:50. But it is not clarified in the decision, what will happen if the refinery fails to continue operations in a particular year or for a longer period.

The BORL will also issue shares of 26.9 crore in favour of state government. The state government will also have to nominated directors on BORL board. The department of finance and department of commerce and industry will nominate the directors.