GST to have negative impact on oil and gas industry
June, 14th 2017
The Goods and Services Tax (GST) will adversely affect the oil and gas industry as the sector will have to comply with both the current tax regime and the GST framework, according to a report.
The government is expected to roll out the GST, which will subsume 16 different taxes, from July 1, 2017. Next meeting of the GST Council is scheduled to be held on June 18, when it will take up lottery taxes and e-way bill.
"The oil and gas industry would have to comply with both the current tax regime as well as the GST regime leading to double compliance cost because five petroleum products viz crude oil, natural gas, motor spirit, high-speed diesel and aviation turbine fuel have been excluded from the GST, while other products such as LPG, naphtha, kerosene, fuel oil etc are included," the Icra-Assocham said in a joint report.
Besides, it will result in non-creditable tax costs where an oil and gas company will pay the GST on procurement of plant, machinery and services, and will be unable to get credit on sale of the finished products (which are out of the purview of GST) as the input GST would not be credible against the excise duty and value added tax levied on these fuels, the report said.
Additionally, as services contribute a significant proportion to the upstream companies' capex and opex, the increase in tax rate from 15 per cent to 18 per cent would impact the upstream companies adversely, it said.
In the gas utilities segment, the report warned that gas marketers will face complexities as they will pay the GST on transmission tariffs, while sale of natural gas is outside the purview of GST.
Further, the PNG in industrial and commercial sectors is likely to become less attractive as fuel, because effective tax rate on competing liquid fuels has reduced from 26-28 per cent to 18 per cent and consumers paying VAT on PNG will not be able to get input tax credit as most of their finished goods would fall under the GST regime. Thus, PNG sales could get adversely impacted, it added.