In partial relief to oil and gas companies, the government on Wednesday said it will either reduce tax rates or exempt a few services related to exploration and transportation from the goods and services tax (GST).
While the rate on bunker fuel will be reduced to 5% from 18% which will make Indian sellers competitive with other Asia ports, works contracts for offshore areas beyond 12 nautical miles will attract 12% tax instead of 18% now.
The government is set to exempt import of rigs for exploration and production of oil and gas “subject to payment of appropriate IGST on the supply/import of such lease service and fulfilment of other specified conditions”. In addition, transportation of natural gas through pipeline will attract GST of 5% without input tax credit (ITC) or 12% with full ITC. The proposals — which revenue secretary Hasmukh Adhia briefed about during the meeting with Modi — will come into effect upon notifications to be issued soon. The decisions, however, were taken during the meeting of the GST Council on October 6.
In a release, the government said the steps have been taken to incentivise hydrocarbon exploration in the country. GST has kept petrol, diesel, ATF, natural gas and crude oil outside its ambit and tax on these products contributes a substantial amount to both states’ and Centre’s exchequers. The government release further said the step has also been taken to “to reduce the cascading of taxes arising on account of non-inclusion”.
The issue was also raised by both domestic as well foreign oil companies, including Rosneft, BP, Shell, among others, at a meeting with Prime Minister Narendra Modi on Monday.