Since Oil and Gas sector has to conform to two tax regimes, the
current one and, the Goods and Services Tax (GST), GST regime, to be rolled out
from July 1, 2017, will have negative impact on the Oil and Gas sector,
according to ICRA-ASSOCHAM report.
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,” said a joint report
by ICRA and ASSOCHAM.
addition, the new tax regime will also result in non-creditable tax cost where
an oil and gas firm will pay the GST for procuring the machinery, plant and
services, however, it will not be able to get the credit on finished products
sale (which has been kept out of the GST purview) as input tax under GST would
not be credible against the value added tax (VAT) and excise duty, imposed on
these fuels, the report said.
services forms a considerable proportion of capital expenditure (capex) and
operating expenses (opex) of upstream firms, the rise in tax rate from 15% to
18% would affect these companies adversely, it added.
utilities sector, the report cautioned that the marketers will have to face
intricacies as the GST will be paid on transmission tariffs, whereas sale of
natural gas has been kept outside the GST purview.
Further, the PNG (Pipelined Natural Gas) in commercial
and industrial sectors is expected to become less attractive as a source of
fuel, because the effective tax rates on other liquid fuels has been cut down
from 26-28% to 18% and customers who are paying VAT on the PNG will be unable
to receive the input tax credit as most of the finished products would come
under the new tax regime of GST. Therefore, sales of PNG could be adversely
affected, it added.