Relief to oil sector as natural gas may be included in GST to benefit ONGC

Oil ministry urges finance ministry to use its good office to convince the GST Council on the issue

The GST Council may decide to include natural gas in the Goods and Services Tax (GST) regime as a measure to provide some relief to the oil and gas sector.

Currently, crude oil, petrol, diesel, jet fuel or aviation turbine fuel (ATF) and natural gas are not included in the new indirect tax structure, which is set to kick in from July 1.

This essentially means that various goods and services procured by the oil and gas industry will be subject to GST, but the sale and supply of oil, gas and petroleum products will continue to attract earlier taxes like excise duty and VAT.

Unlike other industries which can take credit for any tax paid towards the furtherance of business, no credits on input GST will be available to the oil and gas industry leading to huge additional indirect tax burden with stranded costs of about Rs 25,000 crore.

"GST was based on the premise that no one will suffer any loss because of its rollout - neither the government nor the industry. But here is an industry which will see revenue loss from July 1," a senior official said.

The oil ministry has taken up with the finance ministry for early inclusion of all the five exempted products in GST.

"There is a recognition even in the finance ministry that the current situation is not right. They are also making efforts to get the GST Council to see reason," he said.

The GST Council, headed by Finance Minister Arun Jaitley and comprising of representatives of all states, is the highest decision-making body on the new tax regime.

"There is an agreement that natural gas can be included in GST. Natural gas is largely an industrial product and so its inclusion will not be a problem," he said.

The Council is scheduled to meet on June 30, hours before the new regime is rolled out. So far, the inclusion of natural gas in GST has not been listed on agenda, but there is a concentrated push for doing so.

If natural gas is included, GST paid on inputs and services used for producing natural gas can be set off against taxes on its sale. This would cut the losses to the industry by one-fifth.

The move will benefit companies like Oil and Natural Gas Corporation (ONGC) as well as gas retailers like IGL.

"The oil ministry is urging the finance ministry to use its good offices to convince the GST Council on the issue," the official said.

Keeping the five hydrocarbons out of GST would adversely affect both upstream companies like ONGC as well as downstream companies like Indian Oil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation.

He said bringing crude oil, natural gas, petrol, diesel and ATF under GST at one go will be difficult and so a beginning can be made with natural gas.

Crude oil could be next. "Crude oil is also a totally industrial product that has no consumer interface and its inclusion in GST too should not be a problem," he said.