1. Oil and gas companies may take Rs 15,000 crore hit

Oil and gas companies may take Rs 15,000 crore hit

Oil and gas companies are expected to take a Rs 15,000-crore hit in 2017-18, as they are unable to fully offset the taxes paid on input goods and services, analysts said.

By: | Mumbai | Published: November 26, 2017 5:14 AM
oil, gas companies, gst, VAT, ITC, PetroFed, upstream sector, PSU oil marketing companies, Arab Gulf crude, Deloitte India, Bhopal, gst regime Anoop Kalavath, partner, indirect tax, at Deloitte India said, “Government can look at including natural gas under the GST to begin with, as variability of VAT on natural gas in comparison to petrol is much lower. (Reuters)

Oil and gas companies are expected to take a Rs 15,000-crore hit in 2017-18, as they are unable to fully offset the taxes paid on input goods and services, analysts said. These companies’ outputs — crude oil, petrol, diesel, aviation fuel and natural gas — are not under the Goods and Services Tax (GST) and continue to attract excise duty, central sales tax and state VAT. In the GST system, firms pay their output taxes not just in cash, but also by utilising the input tax credits (ITC). But if outputs are outside GST, the entire ITC can’t  be utilised. The hybrid tax system in the petroleum sector — kerosene, LPG and naphtha are under GST while other products are not—increases the cost of production for both the upstream and downstream companies. The non-availability of such credit required is high, at around Rs 15,000 crore, i.e., Rs 7,000 crore in upstream sector and Rs 8,000 crore in downstream sector, as per an estimate by Federation of Indian Petroleum  Industry (PetroFed).

The pricing of the petroleum products do not factor in the impact of GST, with the prices being regulated and determined on a daily basis by the PSU oil marketing companies based on Arab Gulf crude quotes provided by Platts and Argus. “The price of the petroleum products or sales revenue in the hands of oil and gas companies has remained more or less similar even after introduction of GST. Therefore, reversal of huge amount of GST credit in the hands of oil and gas companies has impacted margins of such companies,” a senior industry official said. Refinery Transfer Price (RTP) of diesel and petrol are determined on the daily Arab Gulf FOB quotes. These prices are based on trade parity price, which is 80% of import price parity (IPP) and 20% of export price parity (EPP). IPP represents the price that importers would pay as freight, customs, and other ports duty at the Indian ports, while EPP represents price which oil companies would realise on export of petroleum products at Indian ports including advance licence benefits obtained.

Anoop Kalavath, partner, indirect tax, at Deloitte India said, “Government can look at including natural gas under the GST to begin with, as variability of VAT on natural gas in comparison to petrol is much lower. The maximum VAT on natural gas in some states is about 25%, while it’s 5% at the lower end. The government can look at a range of 12% to 18% GST for natural gas to provide at least partial credit to the companies. This can be followed up with diesel, petrol and crude at a later stage.” Another independent oil and gas consultant based in New Delhi said, “With oil and gas contributing over 15% to India’s GDP it’s high time the five exempted items in oil and gas sector are bought under the ambit of GST to help companies contain losses.”

And there may be some movement in this direction sooner than imagined, driven more by the revenue needs of the state governments. The Madhya Pradesh government on Wednesday said it would decide on bringing petroleum products under the GST after considering its impact on revenue. Speaking to reporters after a cabinet meeting in Bhopal, state finance minister Jayant Malaiya said, “The government will take the revenue outcome in consideration before reaching consensus on bringing petroleum products under the GST regime. We will take appropriate decision whenever the proposal is brought before the GST Council,” he added.

 

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