Budget 2016 likely to give oil cess relief to domestic producers
Advertisement
Advertisement
"There are indications the Budget may announce an ad valorem rate of cess instead of Rs 4,500 per tonne fixed levy currently," a senior government official told PTI.
The ad valorem rate of cess will results in higher payouts when prices are high and lower when rates fall. Currently, state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) pay a cess of Rs 4,500 per tonne on crude oil they produce from their allotted fields on a nomination basis.
Cairn has to pay the same cess for oil from the Rajasthan block.
With oil prices dropping to an 11-year low of under $35 per barrel, the cess translates into one-third of the realisation going away in just one levy.
Advertisement
The Oil Industry (Development) Act, 1974, provides for collection of cess as a duty of excise on indigenous crude oil. Cess incurred by producers is not recoverabl ..
In 2005-06, when the crude oil prices had increased from an average of $40 per barrel to $60, the OID cess was raised from Rs 1,800 to Rs 2,500 per tonne from March 1, 2006. Again, when the crude prices climbed to over $100, the rate of cess went up to Rs 4,500 ($12 per barrel) with effect from March 17, 2012.
While the government had effectively linked the cess rate to prevailing crude oil prices in the past, there has been no reduction when the oil prices have declined.
The official said the Oil Ministry has made a formal representation to the Finance Ministry for making the cess ad valorem. Also, companies like Cairn as well as industry associations too have made similar representations.
Oil producers say the current cess rate constitutes about one-third of the oil price, which has severely impacted several small discoveries and marginal fields, making many of the projects unviable.
Advertisement
In the low oil price environment, several countries including the UK, the US, and China have changed fiscal systems to increase production and promote investments.
Most of crude oil produced in India comes from pre-NELP and nomination blocks and is liable for payment of cess.
While New Exploration Licensing Policy (NELP) blocks like Reliance Industries' KG-D6 are exempt from payment of cess, pre-NELP discovered blocks like Panna/Mukta and Tapti and Ravva pay a fixed rate of cess of Rs 900 per tonne.
(Image credits: indiatimes)
Advertisement
- I spent 2 weeks in India. A highlight was visiting a small mountain town so beautiful it didn't seem real.
- I quit McKinsey after 1.5 years. I was making over $200k but my mental health was shattered.
- Some Tesla factory workers realized they were laid off when security scanned their badges and sent them back on shuttles, sources say
- World Liver Day 2024: 10 Foods that are necessary for a healthy liver
- Essential tips for effortlessly renewing your bike insurance policy in 2024
- Indian Railways to break record with 9,111 trips to meet travel demand this summer, nearly 3,000 more than in 2023
- India's exports to China, UAE, Russia, Singapore rose in 2023-24
- A case for investing in Government securities