Oil ministry has urged finance ministry to put in place a temporary system to allow oil companies to claim input tax credit until crude oil, natural gas, diesel, petrol and jet fuel are covered under the goods and services tax (GST) regime.

GST, which came into effect this month, covers most goods and services across the country but temporarily excludes the five key oil products that are the biggest source of revenue for oil companies. Other oil products such as cooking gas, kerosene and naphtha are part of GST.

Oil companies, therefore, are dealing with two parallel systems of taxation. While they pay GST on equipment and services they use for operations, they cannot set this off against excise duty and value added tax they pay on output such as crude oil, gas, petrol, diesel and jet fuel, resulting in stranded taxes, which, according to one estimate, could be nearly Rs 25,000 crore a year. Following a representation by the oil industry, oil companies and must be addressed quickly, an oil ministry official said.

Finance ministry has been asked to offer some means to set off input tax credit against tax liability of products not yet part of GST, the official said. At present, tax credit cannot be transferred between the old and the new taxation system. The GST Council is aware of stranded taxes, but couldn’t do much earlier as it was busy launching the new tax regime, the official said. However, these issues will now get the attention they need, the person said.

Another issue the oil ministry has raised is that of tax on equipment such as rigs used in exploration and production.

GST has been proposed on the value of service a rig provides, instead of the full value of rig, which is currently the case, leading to huge tax burden on oil companies, the official said. Similarly, tax implication on the movement of rigs between states has also been flagged.