Govt offers tax breaks to boost exports to Iran

The government will offer tax incentives to exporters for sales in rupees to Iran, in the latest effort by New Delhi to bolster exports in return for oil from the Islamic Republic, a finance ministry official said.

Following US and European Union sanctions against Tehran over its nuclear programme, New Delhi is under pressure to cut oil imports from its second-biggest supplier, which provides about 12% of its oil needs.

India has publicly taken a stand alongside other rapidly emerging countries, including China and Brazil, that it would follow only UN sanctions, a position criticised by conservatives in Washington.

To skirt the sanctions, India this year decided to buy oil through a mechanism that lets refiners deposit rupees, which are not freely traded on global markets, for about 45% of Iranian crude purchases in an account at UCO Bank.

India sent a trade delegation in March to Iran to boost merchandise exports as a way of securing oil in return. But the delegation came back empty handed, and Indian exporters have complained of difficulties in trading through the new mechanism.

In response, the finance ministry will now offer tax incentives in the range of 4-12% of the value of products to exporters for sales to Iran in rupees. That brings them on a level playing field with exports sold in freely convertible currencies, such as the dollar.