Under the GST regime, the nation is likely to witness a transformation in the working of businesses. All the sectors are keen to know the consequences of the GST. some are happy with the decision and welcomed the proposal in a healthy way but there are some sectors that have witnessed certain loss after GST.
Oil and gas sector has lost after GST implementation due to non-creditable tax costs not available on the sale of products like petrol, diesel, natural gas etc. As these products have been kept out of the purview of GST, therefore, input on the procurement of raw material of these products shall not be available.
The existing form of the GST law excludes major oil and gas industry products thereby the industry gets benefits. But due to the one-tax-one-nation, the products shall be excluded for taxation. According to a domestic rating agency, the new tax system will also impose an extra tax on the sector for the compliance to a dual tax regime.
The profitability of the industry will be stake under due to the tax-related under-recoveries. The government has rolled out the new tax regime by July 1, 2017, which has merged several Central (central excise, service tax, the special additional duty of customs etc) and state (octroi, entry tax, value-added tax, purchase tax etc) taxes into a single tax. At present, Naphtha, LPG, fuel oil, kerosene etc are included in the current Tax system.
Emerging Issues for Oil and Gas Sector
The oil and gas sector will be getting a hard setback due to the goods and service tax as the sector will have to maintain dual compliance in both of the tax system. It is learned that the oil and gas sector will be holding both tax system viz GST and existing taxation simultaneously.
A joint report of ICRA and ASSOCHAM mentioned that the oil and gas sector will have to follow both current tax scheme and GST tax scheme which will increase the compliance cost almost double for the sector.
The report also mentioned that the sector will not be able to get benefits of input tax credit on tax, as the oil and gas companies will be paying GST on machinery, tools and services but can not avail credit on the sale of furnished product reason being the sector is out of GST ambit.
