The government should make a proposal to consider petroleum products under GST as a welcome move towards the rationalisation of the GST regime. Products like kerosene, naphtha and LPG will be under the GST regime, while other items like crude oil, natural gas, aviation fuel, diesel, and petrol are out of the GST regime during the initial years.
56th GST Council Update on Petroleum Industry
| Description | Current GST Rate | New GST Rate From 22nd September |
|---|---|---|
| “Petroleum operations undertaken under petroleum exploration licenses or mining leases, granted by the Government of India or any State Government to the Oil and Natural Gas Corporation or Oil India Limited on nomination basis, or” | 12% | 18% |
| “Petroleum operations undertaken under specified contracts” | 12% | 18% |
| “Petroleum operations undertaken under specified contracts under the New Exploration Licensing Policy” | 12% | 18% |
| “Petroleum operations undertaken under specified contracts under the Marginal Field Policy (MFP)” | 12% | 18% |
| “Coal bed methane operations undertaken under specified contracts under the Coal Bed Methane Policy” | 12% | 18% |
| “Supply of transportation of natural gas, petroleum crude, motor spirit, high speed diesel or ATF through pipeline” | 5% without ITC | 5% without ITC |
| 12% with ITC | 18% with ITC | |
| “Other professional, technical and business services relating to exploration, mining or drilling of petroleum crude or natural gas or both” | 12% with ITC | 18% with ITC |
| “Support services to exploration, mining or drilling of petroleum crude or natural gas or both” | 12% with ITC | 18% with ITC |
Latest Update
- GST AAR’s order for M/s Gurjinder Singh Sandhu, free diesel filling in vehicles will be subject to GST. Read More
- The Central government on Thursday lowered the GST rate to 5 per cent from 18 on ethanol meant for blending under the Ethanol Blended Petrol (EBP) programme.
Therefore, petroleum products and related industries have to comply with the old tax regime. Under the law, the taxing of petroleum products has been shared between the centres and the States and there is the absence of standardisation, which has produced a complex set of taxes.
However, states will continue to have the freedom to levy local sales tax on it. Earlier, states were against the GST on petroleum goods, but now are looking at it from a different angle as it will bring down the overall tax rate and allow the industry to get credit.
Yet in another stance by the government, Liquefied petroleum gas (LPG) has been considered to be in the same bracket of tax as both domestic and commercial. Currently, the sales tax taxed by states on LPG is average (0-3%), that on commercial LPG is much leading at 12.5-14%. In the same case, the domestic LPG is exempted from the excise duty and a commercial unit attracts an 8 per cent duty as a whole. But now as the ministry and the petroleum minister itself clarified that the same rate has been decided for the domestic and commercial units of LPG.
Tax at a marginal rate would not hurt the consumers much but will benefit the industry in a big way. GST has reduced the cascading effect of taxes paid on petroleum products due to which the restricted utilization of input tax credits on various goods and services consumed during exploration and production.
Considering the size and importance of the petroleum sector, the proposal to subsume its products under GST is a positive one as it allows the industry to utilize the input tax credits on the goods and services consumed in the supply chain.
The petroleum industry has a major contributor to the State exchequer as many states rely heavily on it. Petroleum is also on the list to be included under the GST ambit as cleared by the former Petroleum Minister Dharmendra Pradhan as he pointed out that the inclusion of petroleum into the GST will benefit the states Overall. The minister has said these statements at an event organized to award the bidding winners of petroleum and oil gas sites contracts. Inclusion under GST provides a positive impact on State revenue, as petroleum products would likely be taxed at a higher rate and States are authorized to compensate for revenue shortfall through an additional levy. It simplifies the tax and regulatory issues associated with the production, storage, and distribution of petroleum products by related sectors.
Read Also: GST Impact on E-commerce Sector in India
In the current scenario, where the input goods and services for the petroleum industry is covered under GST and not the outputs hence there could arise complex issue surrounding double taxation, and ineligibility for input tax credits. The proposal to include petroleum products under GST is the right one, and it would be prudent for the States to concur with the country’s larger interest.
ExxonMobil Gas and Power Marketing’s VP LNG Richard Guerrant said there would comprehensively be 175 million tons of incremental LNG by 2023. India along with China and Taiwan will see a steady increase in the LNG demand while the Global LNG oversupply situation will not last long and global natural gas demand is likely to rise by 50 per cent between 2014-24.
Bringing petroleum products and the whole industry within the scope of GST could make Indian manufacturing more competitive.
Madhya Pradesh Government Discussing Bring Petroleum Products Under GST
The Government of Madhya Pradesh was thinking upon to bring petroleum products under the ambit of Goods and Services Tax (GST), after examining its outcome on the revenue.
Speaking to media reporters after attending the cabinet meeting, former Finance Minister, Jayant Malaiya said, “The government will take the revenue outcome into consideration before reaching a consensus on bringing petroleum products under the GST regime.” He further added that “Discussions are going on about bringing petroleum products under the GST’s purview. We will take appropriate decision whenever the proposal is brought before the GST Council.”
Answering a question, Malaiya has accepted that there is a shortage of revenue collection after the implementation of the Goods and Services Tax (GST) Reform, he further added that now the situation is improving.
