Page 4 - AsianOil Week 32 2021

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India’s tax reform should boost upstream confidence
The country has finally scrapped a controversial retroactive taxation system that has led to several high-profile disputes
COMMENTARY
WHAT:
Indian lawmakers passed the Taxation Laws (Amendment) Bill, 2021 on August 9.
WHY:
The legislation allows the government to negotiate settlements in outstanding tax disputes.
WHAT NEXT:
The end of retroactive taxation, coupled with attractive upstream terms, should bolster oil and gas investor confidence.
THE Indian government’s move to scrap the country’s retroactive taxation system, which dates back to 2012, is a major economic reform that should help bolster upstream investment.
Foreign players have long been wary about committing to the country, given both its repu- tation for red tape as well as its aggressive stance on taxation, negotiation and arbitration.
Understanding international investors’ dim view of the country, Indian Prime Minister Narendra Modi has been spearheading eco- nomic reforms since coming to power in 2014. His administration introduced the country’s first effective bankruptcy law and also rolled out the goods and services tax (GST) nation- wide in 2017.
In the upstream space, meanwhile, the government introduced of the Hydrocarbon Exploration and Licensing Policy (HELP), which replaced the New Exploration Licens- ing Policy (NELP). Under HELP the gov- ernment also rolled out the Open Acreage Licensing Programme (OALP), which offers companies marketing and pricing freedom, a revenue-sharing model and allows interested parties to propose boundaries of blocks to submit bids on.
The new terms have struggled to stir much interest from foreign investors, however, with the country’s five OALP rounds having been dominated by just three Indian companies – privately owned Vedanta as well as state-run Oil India Ltd (OIL) and Oil and Natural Gas Corp. (ONG).
With the recent launch of the country’s sixth bid round (OALP-6), the government will be hoping that recent taxation reforms and prom- ises of greater co-operation with investorswill persuade IOCs to reconsider their position.
Tax repeal
The Lower House passed the Taxation Laws (Amendment) Bill, 2021 on August 6 before the Upper House approved it on August 9. The new legislation not only scraps the retrospective tax- ation clause from 2012 but also paves the way for the government to resolve at least 17 tax disputes amounting to around INR500bn ($6.73bn).
For any resolution to be reached, however, companies that are willing to withdraw their cases will only receive the principal tax collected while losing out on any interest awarded via an arbitration panel.
The is extremely pertinent to the UK’s Cairn Energy and Vodafone, which have both success- fully challenged the government’s multi-billion tax claims on past transactions before interna- tional tribunals. Cairn was awarded $1.2bn in damages plus interest and costs in December 2020.
This may be a palatable solution for some, however, with Indian financial daily the Eco- nomic Times reporting on August 11 that Cairn was preparing to hold talks with the government this week. Cairn, the paper quoted unnamed sources familiar with the matter as saying, was happy with receiving just the principal it is owed.
New Delhi will hope that wrapping up one of
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w w w . N E W S B A S E . c o m Week 32 12•July•2021