Oil and gas sector hopes for inclusion in GST regime

The oil and gas industry continues to hope for some reprieve from taxes and inclusion of the sector in the goods and services tax (GST) regime.

“An additional duty imposed since July 2022—the Special Additional Excise Duty (SAED)—has jeopardised financial stability of oil and gas operators and is adversely impacting their ability to invest in capital intensive recovery methods that also account for efficiency and carbon neutrality. This windfall gain tax, imposed on account of high crude prices, is discouraging sustainable business,” noted an industry source.

While Oil Minister Hardeep Puri had recently said that the Ministry of Petroleum and Natural Gas will work on bringing petrol, diesel, and aviation turbine fuel under GST, the GST Council is yet to take a call on it. Finance Minister Nirmala Sitharaman after the last GST Council meeting had said that the decision will have to be taken by states though the intent of the Central government (at the time of the roll out of GST) was clear—to levy the tax on petrol and diesel.

Companies, however, point out that non-inclusion in the indirect tax levy has also led to a skewed scenario for the upstream oil and gas sector as procurement of key goods and services as inputs is under the ambit of GST, while the output is outside the purview of GST. “Multiple tax regimes apply to different parts of the value chain,” said the source.

 

Several industry associations are also understood to have taken up the issue with the ministry of petroleum and natural gas. “Next set of GST reforms to set in for bringing GST under three-tier structure with inclusion of petroleum, real estate, electricity,” CII had said in its pre Budget recommendations.

For consumers, inclusion of these items in GST may not mean an immediate reduction in prices, experts note that it may have an impact in the long term. “Oil and gas prices are uniquely regulated to curb inflation. Once the sector comes under GST, the cascading of taxes would be corrected as many inputs and input services used for production are not eligible for GST credit, thereby becoming a cost in the supply chain and leading to inflation. By removing tax cascading effect, profit margins of oil companies could improve. As a natural corollary, the government will have scope to lower prices for consumers,” said Abhishek A Rastogi, founder of Rastogi Chambers.

Source:: Business Today,  dated 19/07/2024.