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Oil PSUs may not adopt lower taxes to avoid credit loss

Indian Oil Corporation has a MAT credit of ₹2,700 crore and GAIL about ₹2,000 crore.

, ET Bureau|
Oct 18, 2019, 10.37 AM IST
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Companies have the flexibility to adopt new rates next year, but they can’t revert to the old rates once they have switched.
Many state-run oil companies are unlikely to switch to the lower corporate tax regime this year as it would lead to a loss of accumulated tax credit worth thousands of crores and hurt their annual profits.

The government had in September announced a steep 10-12-percentage-point reduction in corporate tax rate to 25.17 per cent to push investments and, in turn, lift the sagging economy. Switch to the new tax regime would require the companies to give up all current tax incentives and exemptions and forego all unused Minimum Alternate Tax (MAT) credits.

Executives at ONGC, Indian Oil , GAIL and HPCL said they are yet to take a call but there is a high possibility that they would switch to the new format only after most of their MAT credit is exhausted. MAT credit is similar to paid advance taxes that could be set off against future tax liabilities.

“It doesn’t make sense to give up so much of accumulated tax credit, incentives and exemptions,” said an executive at ONGC, which has MAT credit of around ₹5,000 crore. “We would seek transition once we have exhausted this credit.”

Indian Oil Corporation has a MAT credit of ₹2,700 crore and GAIL about ₹2,000 crore. “It will be hard to exhaust so much in just a year. We will have to see how fast we can switch,” an IOC executive said.

Companies have the flexibility to adopt new rates next year, but they can’t revert to the old rates once they have switched.

Accelerated depreciation is another factor driving some firms to defer a transition. “It is beneficial to high-capex firms like ours. This will also have to be foregone,” said the IOC executive. Indian Oilplans to spend ₹25,000 crore, while ONGC has a capex of ₹33,000 crore for 2019-20. The combined capex target of all the oil PSUs for FY2020 is ₹94,000 crore.

Some companies are waiting for the direct tax code which is expected next year. “It would bring more clarity on tax issues. There is little sense in adopting a new tax regime now and then again figure out a new code next year,” said the ONGC executive.

According to a survey by ratings agency CRISIL, released earlier this week, a third of the companies from the capex-heavy sectors like power and oil and gas wants to continue with the current tax regime. But, most of the companies from sectors like auto, chemicals, textiles, gems and jewellery, and retail are in favour of an immediate switch.

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