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 have welcomed the proposal in a healthy way, but there are some sectors that have witnessed certain loss after GST.
The oil and gas sector has lost after GST implementation due to non-creditable tax costs not being available on the sale of products like petrol, diesel, natural gas, etc. As these products have been kept out of the purview of GST, the input on the procurement of raw material for these products shall not be available.
The existing form of the GST law excludes major oil and gas industry products; thereby, the industry gets no benefit. But due to the one-tax-one-nation structure, these products shall remain excluded from taxation. According to a domestic rating agency, the new tax system will also impose an extra tax burden on the sector for compliance with a dual tax regime.
The profitability of the industry will be at stake due to the tax-related under-recoveries. The government rolled out the new tax regime on July 1, 2017, which merged several Central (central excise, service tax, 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.
Read Also: GST Impact on Petroleum Products in India
Emerging Issues for the Oil and Gas Sector
The oil and gas sector will face a hard setback due to the Goods and Services Tax, as the sector will have to maintain dual compliance in both tax systems. It is learned that the oil and gas sector will be operating under both tax systems, GST and the existing taxation, simultaneously
A joint report of ICRA and ASSOCHAM mentioned that the oil and gas sector will have to follow both the current tax scheme and the GST 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 the benefits of input tax credit, as the oil and gas companies will be paying GST on machinery, tools, and services, but cannot avail credit on the sale of finished products, the reason being that the sector is out of the GST ambit.
