With taxes and government profit share eating away more than three-fourth of revenue, India’s biggest private oil producer Cairn Oil and Gas has sought a review of taxation system during low oil price regime, saying funding exploration will be difficult in the present scenario.
Ajay Dixit, the chief executive of Vedanta Ltd’s oil and gas arm, said the government levies 20 per cent cess on oil price realised and an equivalent amount has to be paid to the state government in royalty.
On top of this, the government is entitled to profit petroleum of 50 per cent of earnings after deducting cost.
“In the present low oil prices, there is hardly any money left after paying cess, royalty and profit petroleum. There is a need to revisit these levies,” he said.
He said cess, which was brought in when oil prices were very high, should not be levied if the price realised is less than USD 45 per barrel.
Also, the rate of profit petroleum also needs to be revisited.
“There is no way we can fund exploration in the present high incidence of taxation and low oil prices continue,” he said, adding exploration is a risky business and not funded by debt.
International oil prices had fallen to low-20s and have only in the past couple of days bounced to USD 27 per barrel on signs that the world’s biggest producers are moving toward a deal to end their price war and cut output as the coronavirus eviscerates energy demand.
Dixit said the outbreak of COVID-19 has cost the company 50,000 barrels of oil and oil equivalent gas in production.