With reports of the petroleum sector taking a Rs 25,000- crore hit due to not being able to get input tax credits under GST, revenue secretary Hasmukh Adhia said that a committee has been set up to examine the matter. Adhia was speaking at a townhall meeting conducted by CNBC-TV18 – Adhia, however, said the hit was unlikely to be so high.
Interestingly, J&K finance minister Haseeb Drabu joined private sector experts in asking for all petroleum products to be included in GST. Former petroleum secretary Saurabh Chandra also echoed this thought. In the absence of this, experts said, prices of various petroleum products could go up after July 1.
Under what has been proposed, while kerosene, naptha and LPG will come under GST, crude oil, natural gas, petrol, diesel and aviation fuel will remain under the old system – they will continue to pay VAT at the rate each state government fixes and the central excise duty.
While LPG and ration-shop kerosene will pay a 5% GST, lubricating oil, superior kerosene oil and derivative waxes, among others, will be charged 18% GST. Petrol will pay the existing tax rates – a central excise levy of Rs 9.20 per litre plus 3% education cess and the state VAT varies from 20-37%.
The excise and VAT taxes, under the dual-tax system, cannot be set off against the GST and this is where the revenue loss will come from. Though it was a well known fact that this industry will face the dual tax structure, “the severity of it is becoming clear now and no one knows when it will get sorted,” said Deepak Mahurkar, partner and leader-oil and gas, PwC India.
According to Mahurkar, this will mean the sticking cost for OMCs will go up for companies which may be passed on to consumers, given they have pricing freedom. “This is why classical GST system is important as it will benefits consumers too,” he added as it will increase the compliance burden for OMCs.
If the government wishes, there are several ways to compensate the oil companies. One way, for instance, could be to lower the excise duties payable by the amount of the hit to the oilcos. Not everyone, however, believes this will be done.