GST policy on various sectors of the economy is being intensely debated by the government and industry at giant. In this debate, destiny of a crucial sectors of the economy, namely the oil and gas, nonetheless hangs in the stability, as final policy degree decisions are but to be taken. Whereas the government and the GST council are empowered to introduce GST on specified petroleum products (viz petroleum crude, petrol, diesel, aviation turbine gasoline and pure fuel) from a advisable date, solutions to key questions round when would GST kick-in, what can be the tax framework and what is predicted of the business members within the interim, remain elusive.
The oil and fuel sector, though one in all core industries, has always been beset with regulatory and monetary hurdles. The central authorities has tried to lend obligatory help for its stability by providing tax exemptions, subsidies and other monetary and non-financial help, particularly to the upstream sector. The extent of help offered to this sector will be gauged from the very fact that nearly one-fourth of the total revenue foregone from custom duties is on account of the crude and mineral oils. Nonetheless, it is probably going that a few of the great work on this front may be undone if the GST is activated for specified petroleum products at a later date slightly than making it effective upfront. In case GST on these merchandise is deferred, the stakeholders are staring at a possibility of a regime where, while GST applies on sure petroleum primarily based merchandise resembling lubricants, naptha and kerosene, different specified merchandise will proceed to draw VAT and excise. This could render the sector worse-off from what it is under the current tax regime, which is highly undesirable.
The proposition of bringing recognized petroleum merchandise below GST at a later date brings in hosts of issues and difficulties for the companies working in this sector. The industry could be required to function beneath twin regimes; existing as well because the GST regime. To allow this, companies are anticipated to gear up their IT systems to match with the compliance necessities underneath each the regimes. Making ready the already complex IT system of oil and gas players to deal with each the regimes is a herculean activity. Additionally, the companies would be required to undertake audits and assessments below each the regimes and deal with a number of tax authorities. With no clarity on the proposed date when the petroleum products would be rolled under the GST laws, the compliance struggles which are expected throughout the interim appear unending.
With all the non-petro procurements of refining and advertising companies coming in loaded with GST, the set-off of such taxes wouldn’t be solely obtainable since most of the output would be exterior GST. The disallowance of tax credit will influence the cost of gross sales to the downstream sector, thereby exerting an upward stress on the fuel worth to customers. The increased price of fuel may have an inflationary effect on various sectors starting from street and air transport, railways and so on. Alternatively, oil marketing companies are expecting huge enhance in underneath-recoveries in case the increased cost resulting from non-creditable taxes shouldn’t be passed on because of the parity-based mostly pricing mechanism adopted in India.
Considering the potential unfavourable influence that is likely to crop up in case the oil and gasoline sector is ignored of GST, the industry at massive is asking the government to think about the option of including the recognized products under the GST internet. For this, varied choices have been instructed by the business bodies, similar to treating the provision of identified petroleum products as ero ratedbeneath the GST regime with the intention to allow refund of enter credits. Other taxation fashions embody simultaneous levy of GST and existing taxes on the desired products with a potential full-scale GST coupled with scaling down of current taxes or visa-versa, thereby enabling firms to set off enter taxes against output GST legal responsibility. Additional solutions flowing in from the business in relation to petroleum merchandise include replacing the import parity pricing mechanism with other appropriate strategies, bringing in appropriate provisions underneath the GST legislation on credit restrictions on use of petroleum products to safeguard curiosity of the revenue and so on.
Though the federal government is all decked-as much as introduce the brand new regime in the coming months, true benefits from the brand new regime could be reaped by adopting essentially the most applicable taxation methodology, particularly for the core sectors. Because the dice on the GST implementation starts to roll, all eyes are keenly monitoring the discussions of the GST council to get probably the most awaited reply on inclusion of specified petroleum products beneath GST.
