Investments by oil refiners in new refinery projects can be in jeopardy after the latest Union Budget, which has a provision that strips new refinery projects of income tax benefits. As things stand, a petroleum refinery is eligible for 100 per cent income tax exemption for the first seven years of its operation.
The Budget memorandum has now introduced a Sunset clause for 100 per cent tax exemption for refining of mineral oil, if the project starts after April 2009.
This means the new refineries will no longer enjoy the I-T benefits, under Section 80-IB of the Income-Tax Act, that other projects have had. If implemented, the provision could grossly reduce the return on capital and increase the payback period for new refinery projects.
''Gas is a more focussed sector in our economy but our production capacity is merely eight per cent as compared to 40 per cent of the world,'' Mr Sharma added.
The Budget has actually proposed a new provision in sub-section (9) of Section 80-IB, to provide that no deduction will be allowed to a mineral oil refiner if they begin operations after April 2009.
However, confusion exists with the same Budget memorandum redefining the words 'mineral oil'. According to the memorandum, ''for the purpose of this section, the term 'mineral oil' does not include petroleum and natural gas, unlike in other sections of the Act''.
In the absence of any clear understanding as to what 'mineral oil' would mean if not petroleum crude, most of the refiners are convinced that their new projects will get hit.