Oil And the gas industry has demanded abolition or review of the ‘Oil Industry Development’ (OID) cess on crude oil in the Budget to be presented on February 1. The industry has said that this is having a negative impact on domestic production and the feasibility of projects. The Federation of Indian Petroleum Industry (FIPI) in its suggestion regarding the budget sent to the Finance Ministry has said that OID Cess has now become an excessive burden for the petroleum industry. He said that historically this cess has been only 8-10 percent of the price of crude oil.
OID cess is levied under the Oil Industry (Development) Act, 1974.
The OID cess, levied under the Oil Industry (Development) Act, 1974, was changed to a 20 per cent value-based levy instead of the specific rate with effect from March 1, 2016, following a sharp fall in global crude oil prices. This cess is applicable only on those oil blocks in which exploration and production rights had already been given by the government to nominated companies or which came under the old licensing policy before 1997 (pre-NELP). FIPI said that in reality these blocks are mostly old and in declining production, hence more investment is required to maintain production in them.
Local oil producers remain in loss due to OID cess
On the other hand, this cess is not applicable on New Exploration License Policy (NELP), Open Area License Policy (OALP) and Discovered Small Area (DSF) blocks. The industry body said ONGC’s larger fields like Mumbai High and Basin are designated blocks, while Vedanta Cairn’s Rajasthan field is a pre-NELP block. The organization also said that since OID cess is imposed only on domestic crude oil, local producers remain at a disadvantage compared to imported oil and this is contrary to the objectives of ‘Make in India’ and ‘Atmanirbhar Bharat’.
Demand to remove National Disaster Contingency Fee and Basic Excise Duty also
Instead of completely abolishing this cess, the industry body has suggested implementing a phased cess linked to the price of crude oil. Under this, it is proposed to impose zero cess up to $25 per barrel, 5 percent on $25-50, 10 percent on $50-70 and 20 percent above $70. Apart from this, the Indian Petroleum Industry Federation has also demanded removal of ‘National Disaster Contingency Duty’ (NCCD) and ‘Basic Excise Duty’ imposed on domestic crude oil. The organization says that removing these taxes will reduce the regulatory burden and promote ease of doing business.
Latest Business News