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Chidambaram forced to rollback controversial tax clause
Every budget of Palanniappan Chidambaram, India's dapper Minister for Finance, has a controversial tax proposal that tends to ruin the overall impact of his so called dream budgets. If it was the cash withdrawal tax in one budget , it was the securities transaction tax in another and the fringe benefit tax in yet another budget. In his latest budget it has been the controversial sunset clause ending the tax exemption for new refineries by April 2009.
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Not surprisingly, under pressure from the public sector companies, Chidambaram has been compelled to rollback this clause whose only beneficiary was Reliance Petroleum even as the state owned refining companies new refineries were hit. Chidambram has postponed the sunset clause for the seven-year income tax holiday for refineries to March 31, 2012 from April 1 2009.
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Chidambaram said since three government-owned crude oil refineries coming up in Paradeep, Bathinda and Bina would be able to begin production only after April 2009, the sunset clause would come into effect in March 2012. "PSU refineries under construction have also been exempted from the sunset clause provision under section 80 IB," he said.
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The state owned oil companies and the Ministry of Petroleum heaved a collective sigh of relief. The petroleum ministry had lobbied with the finance ministry for continuing with the tax holiday as construction of the three refineries, by Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL), respectively, began when the tax holiday was in place. The continuation of the tax holiday till 2012 makes IOC's Paradeep refinery feasible, an IOC official admitted.
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However, Chidambaram, whose earlier sunset clause was benefiting only Reliance's Petroleum 580,000 barrels per day export oriented refinery scheduled for completion before December 2008, made no mention of the private sector refineries being planned. These include the second hand refineries of Nagarjuna Oil at Coimbatore, the Cals refinery at Haldia and the proposed expansion of Essar's refinery - Essar Oil is expanding its refinery capacity in Gujarat to 34 mtpa from the current 10.5 mtpa.
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