Tax holiday ends, IndianOil, Nagarjuna to be hurt
Ahmeadabad   28-Mar-2012

IndianOil, the country’s biggest oil marketing company, will lose Rs330 crore every year once its Paradip refinery in Orissa comes on stream - because it missed the March 2012 deadline to complete the project in order to enjoy a 7-year tax holiday.

Ditto the Cuddalore refinery promoted by the Hyderabad-based Nagarjuna Oil Corporation. The 6 million tonne per annum (mtpa) refinery is expected to lose over Rs70 crore a year once it comes on stream.

In order to promote investments in petroleum refineries, the Government of India currently offers a 7-year tax holiday to all the refineries which come up on or before March 2012.

This essentially means that these new refineries will be exempted from the 34% corporate tax for a period of seven years from the day of completion. However, they are liable to pay the minimum alternate tax (MAT) at the rate of 17% per annum, which is later recoverable after the seven year period is over.

Blame it on slow execution of the greenfield project or reluctance of the government to extend the tax benefit further in its current Budget, IndianOil’s Orissa-based 15 mtpa petroleum refinery will have to shell out tax on its profits at the rate of 34% instead of 17% MAT, thereby doubling the entire tax liability of the refinery.

“We have done our calculations and have realised that the impact on our profits from the refinery will be to the extent of $0.6 per barrel,” said P K Goyal, director - finance, IndianOil.

He said that the company has written to the government for an extension of the tax holiday but so far there has been no positive response. “We are pursuing it with the government. Let’s see what happens,” he said.

An analyst with a leading domestic brokerage said the 15 mtpa capacity translates into a per day production of 300,000 barrels of petroleum product and hence a loss of $0.6 per barrel will see the company shelling out Rs330 crore every year towards taxes.

“Nagarjuna’s Tamil Nadu refinery is not as complex and huge as Paradip and hence the impact could be half of it considering depreciation and other aspects,” the analyst said and added that Nagarjuna could see the extent of loss in profits of up to $0.3 per barrel or Rs70-75 crore per year.