direct tax code - oil and gas sector
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Direct Tax Code – Oil & Gas sector
Key issues and implications
Major issues concerning Oil & Gas Sector
Direct Tax Code Bill 2009Page 3
1. MAT
Existing Provisions DTC
► 15% of the book profits
► Credit allowed for next 10 assessment
years
► 2% on the values of gross assets
► Gross assets includes all assets
(including work in progress) as reduced
by the accumulated depreciation and
debit balance in profit and loss account
if already included in the value of assets
► No credit allowed in subsequent years
Direct Tax Code Bill 2009Page 4
Impact of above provisions
► Oil & gas sector is highly capital intensive, even in initial years when profits
may be nil or very low there could be MAT
► MAT implication even on exploration CWIP
Direct Tax Code Bill 2009Page 5
2. Tax Holiday-Upstream sector
Existing Provisions DTC
► 7 year tax holiday for commercial
production of mineral oil
► Ambiguity in case of availability of tax
holiday on natural gas, except NELP-
VIII and CBM-IV
► The above provisions also applies if the
undertaking is transferred in an
amalgamation or a demerger
► No provisions for any profit-linked
incentives
► The grandfathering provisions seek to
continue the tax holiday under the Act
only if the undertaking is eligible for
such tax holiday in financial year 2010
Direct Tax Code Bill 2009Page 6
Impact of above provisions
► Tax holiday for upstream operations is available once the commercial production is commenced. Accordingly, irrespective of the present controversy around tax holiday on gas blocks, it seems the tax holiday may not be available even for existing blocks if they do not start commercial production within financial year 2009-10
Direct Tax Code Bill 2009Page 7
3. Tax Incentive - Midstream sector
Existing Provisions DTC
► Investment linked tax incentives
available for the business of laying and
operating cross country natural gas or
crude or petroleum oil pipeline network
for distribution, including storage
facilities being an integral part of such
networks.
► Entire capital expenditure (other than
expenditure incurred on land, goodwill,
or financial instruments) allowed as a
deduction in the year in which it is
incurred
► No deduction of this expenditure will be
allowed under any other section
► Similar provisions prescribed under
DTC
► DTC specifies the receipts which should
be considered as income and the
expenses which should be allowed as
deduction.
Direct Tax Code Bill 2009Page 8
4. Tax Holiday- Downstream sector
Existing Provisions DTC
► Section 80IB(9) provides for 7 year tax
holiday for an undertaking engaged in
refining of mineral oil and which begins
operation upto 31 March 2012
► No provisions for any profit-linked
incentives
► The grandfathering provisions seek to
continue the tax holiday under the Act
only if the undertaking is eligible for
such tax holiday in financial year 2010
Direct Tax Code Bill 2009Page 9
5. Taxability as Association of Persons (AOP) –
Upstream sector
Existing Provisions DTC
► Specific exemption from AOP for
upstream companies
► No similar provision in DTC
Direct Tax Code Bill 2009Page 10
7. Residency Rule
Existing Provisions DTC
► As per section 6(3), a company is said
to be resident if during the year, the
control and management of its affairs is
situated wholly in India.
► As per DTC, a company shall be
resident if its place of control and
management, at any time in the year, is
wholly or partly in India.
Direct Tax Code Bill 2009Page 11
9. Site Restoration Fund
Existing Provisions DTC
Section 33ABA
► Deduction permitted for deposit in SF
Account
Eleventh Schedule
► No similar provision
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