Assocham seeks extended tax holiday for oil and gas exploration industry

The Associated Chambers of Commerce and Industry of India (Assocham) has called for an extension in tax holiday for the highly capital intensive oil and gas exploration industry, which has a long gestation period and is strategically important for the country.

Provision of section 80-1B (9) of the Income Tax Act should be amended to allow for extension of the seven-year tax holiday to 10 years and to allow flexibility for companies involved to choose the period during the initial 15-year period of operations.

During the initial seven years, companies have large expenditure to set off and hence the actual benefit of tax holiday does not reach them, said Assocham. This period is shorter than that allowed to companies in infrastructure sector, including power generation and distribution.

In view of the country's energy requirements, the sunset clause for commencement of refining needed to be extended to 31 March 2013. "It is expected that extension of tax holiday will benefit refining companies starting operations in 2012-13 and the benefit could be passed on to consumers," said Assocham president Rajkumar Dhoot in a pre-budget memorandum to the finance minister.

It is important that expenditure incurred on drilling and exploration activities be considered like expenditure on research and development, and weighted deduction of the actual expenses incurred by the assessee be allowed.

According to Dhoot, there was a need to increase depreciation rate for tax deduction under income tax to improve internal accrual for replacement of assets in the current difficult financial market and volatile crude oil prices. Inverted duty structure prevalent in certain industries should be removed, he said.