No tax incentives for investors under the proposed Direct Tax Code

India on Friday kicked off the IX round of auctioning under the New Exploration Licensing Policy (NELP), offering 34 oil and gas blocks, including eight deep water ones, sans tax exemptions to investors.

“The New Exploration licensing Policy round IX is being launched in the background of positive economic conditions, including revision of the administered price mechanism (APM) gas price and market determination for price of petrol,'' Petroleum and Natural Gas Minister Murli Deora told reporters at the launch programme here. The 34 blocks, which include 15 re-cycled blocks, cover a sedimentary basin area of 88,807 sq. km. The deadline for making a bid for the blocks is March 18, 2011. The previous eight rounds of NELP in 235 blocks have fetched an investment of around $14 billion.

The IX round of auction comes amid indications that the government is doing away with tax incentives under the new Direct Tax Code (DTC) proposed to be implemented from April 1, 2012.

“Investors basically want clarity in NELP IX. The position is absolutely clear,'' Petroleum Secretary S. Sundareshan. The DTC, once in force, would apply to all production sharing contracts in the future including under NELP IX, he added. Till it does, the production sharing contracts will be governed by the existing income-tax laws.

Under the current Income-tax Act, companies that started crude oil production before April 1, 1997, are exempted from paying taxes on profits for seven years. Refineries, which started operations after October 1, 1980, and before March 2012, are also eligible for the same level of incentive.

However, no tax breaks are given to natural gas finds, except for the gas that is to be produced under NELP VIII blocks and the four coal bed methane (CBM) blocks. The first roadshow for NELP IX will be held in Mumbai on October 18. “The discoveries made under the NELP have resulted in in-place hydrocarbon reserve accretion of a staggering 642 million tonnes of oil and oil equivalent gas,'' Mr. Deora said.

The VIII round, which closed on October 12, 2009, attracted investment commitment of $1.34 billion for 36 blocks that received offers. Under NELP VIII, 70 areas or blocks for exploration were offered, the biggest licensing round in India. Of the 36 areas bid for, the government had awarded 33 blocks to successful bidders.

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