India’s oil industry seeks lower GST rates in upcoming Budget
As the Indian government prepares to unveil its Budget for the financial year 2026-27, the oil and gas industry is pinning its hopes on a key demand: the inclusion of crude oil and natural gas under the Goods and Services Tax (GST) framework at a lower rate of 5%. This move, according to industry stakeholders, would significantly improve the ease of doing business and bring much-needed relief to the sector.
The oil and gas industry has been seeking the inclusion of petroleum products under the GST framework for quite some time now. Currently, crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) are outside the ambit of GST, and are instead governed by a complex web of state-specific taxes and levies. This has resulted in a high tax burden on the industry, making it less competitive and affecting the overall economic growth of the country.
“We remain hopeful of the inclusion of petroleum within the GST framework,” said Kapil Garg, Founder of Oilmax Energy, a leading player in the oil and gas sector. The industry’s demand for a lower GST rate of 5% on crude oil and natural gas is based on the fact that these products are essential inputs for various industries, including power, fertilizers, and transportation. A lower tax rate would not only reduce the cost of production but also make Indian industries more competitive in the global market.
The inclusion of petroleum products under GST would also help to eliminate the cascading effect of taxes, which is a major concern for the industry. Currently, taxes paid on inputs such as crude oil and natural gas are not creditable against the output taxes, leading to a higher tax burden and increased costs. By bringing these products under the GST framework, the industry would be able to claim input tax credits, reducing the overall tax liability and improving cash flows.
Another key demand of the industry is compensation for the under-recoveries made on LPG (liquefied petroleum gas) sales. According to an executive from ICRA, a leading credit rating agency, the industry may seek compensation for the losses incurred on LPG sales, which are currently subsidized by the government. The executive pointed out that the government’s subsidy burden on LPG sales has been increasing over the years, and the industry may seek reimbursement for these losses in the upcoming Budget.
The demand for lower GST rates and compensation for LPG under-recoveries is not without merit. The oil and gas industry is a critical sector that contributes significantly to the country’s economy. It provides employment opportunities, generates revenue, and meets the energy needs of the nation. By providing a more favorable tax regime and addressing the industry’s concerns, the government can help to boost investment, increase production, and reduce dependence on imports.
The upcoming Budget presents an opportunity for the government to address the long-pending demands of the oil and gas industry. The industry’s demand for a lower GST rate of 5% on crude oil and natural gas, as well as compensation for LPG under-recoveries, is a reasonable one. By accepting these demands, the government can help to improve the ease of doing business, reduce the tax burden, and increase the competitiveness of the industry.
In conclusion, the oil and gas industry’s demand for lower GST rates and compensation for LPG under-recoveries is a key aspect of the upcoming Budget. The industry’s stakeholders are hopeful that the government will address their concerns and provide a more favorable tax regime. By doing so, the government can help to boost the growth of the sector, increase investment, and reduce dependence on imports. As the country prepares to unveil its Budget for the financial year 2026-27, all eyes are on the government to see if it will accept the industry’s demands and provide the necessary relief to the oil and gas sector.
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