 "Low prices, high GST: Double whammy for upstream energy companies")
The higher goods and services tax (GST) on oil and gas exploration and production (E&P) services is set to pressure margins of Indian upstream companies already grappling with lower energy prices.
Analysts warn that the tax hike will push up the cost of producing crude oil and natural gas, eroding company earnings. “Since crude oil and natural gas are outside the GST net, a rise in production costs without an offset on sales will lead to stranded taxes,” said Prashant Vasisht, senior vice-president and co-group head, corporate ratings, Icra.
The GST Council on September 3 recommended raising the levy on goods and services used in the oil and gas E&P sector from 12 per cent to 18 per cent, with input tax credit (ITC).
India’s upstream industry includes state-run Oil and Natural Gas Corporation (ONGC) and Oil India, along with private players such as Reliance Industries and Vedanta’s Cairn Oil & Gas.
Global crude prices have been sliding, dragging down realisations for producers. “Oil and gas prices have moderated sharply since April 2025, driven by global economic headwinds and the unwinding of Organization of the Petroleum Exporting Countries+ production cuts. Lower realisations, combined with rising production costs, are a double whammy for the sector and could make some assets unviable,” Vasisht added.
Benchmark Brent is hovering around $66 a barrel, compared with $76 a year ago. ONGC reported a 20 per cent drop in crude realisation to $66.13 a barrel in the April–June quarter of 2025-26.
Experts say including oil and gas exploration services in the 18 per cent GST slab is part of a broader tax rationalisation exercise, under which most industrial goods and services are being consolidated at a standard rate.
“While the move means a modest rise from the earlier 12 per cent, the impact on project economics may be limited, especially since upstream activity is already benefiting from reforms such as amendments to the Oilfields (Regulation and Development) Act, the Open Acreage Licensing Policy Round X, and the draft piped natural gas rules,” said a senior executive at an Indian oil and gas company.