Videocon Industries to bear a tax hit of Rs 3,800-5,100 crore on amended Mozambique tax norms

Videocon Industries Ltd. | Consumer Durables - Electronics | Consumer Durables | BSE: 511389 | NSE: VIDEOIND

24 Dec 2012 Evaluate

Videocon Industries may have to bear a tax burden of Rs 3,800-5,100 crore on a potential sale of its 10% stake in Mozambique’s Rovuma basin, unless the company is able to push through a deal before the start of the New Year before African country’s recently-amended corporate tax regime come into effect.

The parliament in the southern African nation recently amended its corporate income tax regime, wherein it decided that any sale of Mozambican assets held by non-resident entities would be taxed at 32% without consideration for the period they were held. Earlier, the sales of local assets belonging to foreign companies were taxed on a progressively declining basis, depending on the length of time they were held.

Videocon, back in 2008, invested $100 million to buy the stake in Mozambique and had valued its 10% stake in the gas block at $2.26 billion or Rs 12,479 crore in August. Further, the company is reportedly in talks with Dutch oil & gas major Shell over a $3-billion deal.

However, if the deal goes through in the $2.2-3 billion price range, Videocon’s capital gains on the sale will be reduced by $690 million to $997 million. In comparison, at the 12.8% rate that was applied to capital gains on the buyout of Cove Energy by Thailand’s PTT Exploration and Production, Videocon would have had a tax outgo of just $281 million to $371 million.