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Oil and gas firms say GST will impact production, expansion plans

LiveMint logoLiveMint 29-05-2017 Gireesh Chandra Prasad

New Delhi: Oil and gas producing companies on Monday told petroleum minister Dharmendra Pradhan that investments in the expansion of infrastructure networks including gas pipelines would suffer because five hydrocarbons are being kept temporarily out of the goods and service tax (GST) that will kick in from 1 July.

At a review meeting that Pradhan held here with oil companies, industry executives said GST in the current form—which does not cover crude oil, petrol, diesel, jet fuel and natural gas— will have a negative impact on oil and gas production as well as on their capital investment and pipeline expansion plans, according to an official statement.

Pradhan, the statement said, assured the companies that their concerns will be conveyed to finance minister Arun Jaitley “for agreeable resolution.” The minister also urged industry executives to raise their concerns with the respective state governments, especially in oil and gas producing states, for changing provisions pertaining to the sector which may affect new investments and job generation.

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

The amount of GST that ONGC, for example, pays on hiring of rigs and purchase of equipment and services for crude oil production cannot be used in meeting the tax liability on supply of oil, which will continue to be covered by central excise duty and value added tax.

Similarly, the amount of GST that refiners pay on various services and equipment cannot be used to meet the tax liability on the specified finished petroleum products, that will also continue to be under excise duty and VAT.

Taxes on alcohol and fuel are the easiest to collect and states want them to be out of GST till the impact of the transition to the new system on their revenue receipts is clear. The GST Council may take a call on their inclusion in GST after a couple of years, for which the concurrence of both union as well as state governments are essential.

Industry representatives highlighted at the meeting that GST in its present form needs amendments and clarifications. They also suggested that green fuels such as natural gas, condensed natural gas, bio-diesel and ethanol blended petrol should be zero-rated under GST to promote clean environment. Businesses can claim refund of taxes paid on raw materials and services used in the production of items that are assigned a zero GST rate.

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