India is exempting foreign companies from income tax when they sell oil locally at the end of a contract for strategic storage with the government, under the 2017-18 budget proposals to boost the oil and gas sector.
"Foreign companies shall not be liable to tax in India in case of sale of leftover stock of crude oil in case of strategic petroleum reserve after the expiry of agreement or the arrangement, subject to fulfilment of certain conditions," Petroleum Minister Shri Dharmendra Pradhan said in a statement, welcoming the budget proposals.
Companies are currently exempt from tax on the sale of oil from the strategic petroleum reserve during the duration of the contract. The extended tax break would enter into force from the financial year starting in April.
India, which imports most of its oil, is also proposing the setting up of two more strategic petroleum reserves in the eastern state of Odisha and northwestern state of Rajasthan to enhance its energy security. The two new SPRs will increase India's storage capacity to meet the consumption requirement of about 90 days, which is on par with the international benchmarks, according to the ministry's statement. India currently has three underground storage facilities.
The new budget proposals aimed at boosting the oil and gas industry also include the reduction of the basic customs duty on LNG from 5 percent to 2.5 percent.
In addition, India aims to create an integrated public sector 'oil major', as the ministry put it.
India's economic growth and rising income pushed up vehicle sales and fuel demand last year, with oil consumption soaring 11 percent to the highest on record, according to oil ministry data. India's oil products consumption increased to 196.5 million tons last year from 177.5 million tons in 2015, with transport fuels gasoline and diesel making up more than half of the country's oil products consumption. The increase was driven by rising income, which is encouraging people to buy more passenger cars, scooters and three-wheelers. In addition, the road transportation sector is also growing fast.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More