CHENNAI: The energy sector was in the midst of several policy reforms in 2016. However, while the industry feels that the reform agenda is heartening, it does expect certain measures to be taken. At the centre of the agenda is removing the ambiguity in the tax structure on Oil & Gas in the wake of GST implementation.
A roadmap for increasing domestic production of liquid hydrocarbons is also keenly awaited. If the strategy includes reducing taxes or introducing tax exemptions, energy costs might well decrease for consumers, experts point out.
Speaking to Express, Deepak Mahurkar, leader, Oil & Gas, Pricewaterhouse Cooper, reiterated the same. “Oil & Gas is declared as one of the few sectors in which the products will not be included in GST.
While the compulsions of negotiations with the states are understood, the sector is expecting a concrete plan to be declared for classical GST to start applying,” he said, stressing that avoiding ambiguities in the provisions is an “ask” from the industry. This would “make the administrative burden of handling GST and non-GST included items” on the input and output side.
Meanwhile, the deficit in gas infrastructure is another issue that needs to be addressed, say experts. According to a senior official in a state-owned oil firm, the industry expects the government to do more than just the usual.
“You need to go beyond conventional measures,” he said. “The least expected (from the industry),” Mahurkar added, is more allowance of variable gap funding, “introducing practical PPP schemes, enforcing license conditions to build confidence of quality and experienced investors.” Variable gap funding is allocated by the government to projects that are economically justified but not financially viable.
On renewable energy, BMR Advisors, a tax and risk advisory firm, says a slew of tax incentives are expected. “Roll out of geography-based tax incentives for renewable energy sources similar to those for Special Economic Zones (‘SEZs’)” is one demand, while BMR also points out that tax exemptions and deductions should be given to power generation and transmission players.
“Consider exempting/rationalising levy of Minimum Alternate Tax (MAT) for power generation business. The present MAT rate of around 20 percent... materially neutralises the economic benefit of accelerated tax depreciation,” BMR added.