India’s oil industry seeks lower GST rates in upcoming Budget
As the Union Budget for 2026-27 approaches, India’s oil and gas industry is gearing up to make a strong case for the inclusion of crude oil and natural gas under the Goods and Services Tax (GST) framework at a lower rate of 5%. The industry has been seeking this concession for a long time, with the aim of improving the ease of doing business and reducing the burden of multiple taxes.
The demand for lower GST rates is not new, but it has gained significance in recent times due to the increasing complexity of the tax structure and the need for a more streamlined and efficient system. The oil and gas industry is one of the most critical sectors in the country, contributing significantly to the national economy and providing employment opportunities to millions of people.
According to Kapil Garg, Founder of Oilmax Energy, “We remain hopeful of the inclusion of petroleum within the GST framework.” This statement reflects the industry’s optimism and expectations from the upcoming Budget. The inclusion of crude oil and natural gas under GST at a lower rate of 5% would not only simplify the tax structure but also reduce the compliance burden on businesses.
The current tax structure for the oil and gas industry is complex, with multiple taxes and levies applicable at different stages of production, refining, and distribution. The GST, which was introduced in 2017, has not been applicable to crude oil and natural gas, leading to a dual tax structure. This has resulted in a higher tax burden on businesses, making them less competitive in the global market.
The industry’s demand for lower GST rates is also driven by the need to reduce the under-recoveries on LPG sales. As per an ICRA executive, the industry may seek compensation for the under-recoveries made on LPG sales, which would help to offset the losses incurred by oil marketing companies. This would also ensure that the benefits of lower taxes are passed on to consumers, leading to a reduction in the prices of LPG and other petroleum products.
The inclusion of crude oil and natural gas under GST at a lower rate of 5% would have several benefits for the industry and the economy as a whole. It would lead to a reduction in the tax burden on businesses, making them more competitive and efficient. It would also simplify the tax structure, reducing the compliance burden and the risk of tax evasion.
Moreover, the lower GST rate would lead to a reduction in the prices of petroleum products, which would have a positive impact on inflation and the overall economy. As the prices of petroleum products are a key component of the Consumer Price Index (CPI), a reduction in these prices would help to bring down inflation and make the economy more stable.
The demand for lower GST rates is not limited to the oil and gas industry. Other industries, such as manufacturing and services, are also seeking concessions and exemptions from the GST. However, the oil and gas industry is unique in its requirements and challenges, and the government needs to take a nuanced approach to address its concerns.
In recent years, the government has taken several steps to simplify the tax structure and reduce the compliance burden on businesses. The introduction of the GST was a major reform, which aimed to create a unified market and reduce the complexity of the tax structure. However, the exclusion of crude oil and natural gas from the GST framework has created a dual tax structure, which needs to be addressed.
As the Union Budget for 2026-27 approaches, the oil and gas industry is hoping that the government would take a favorable view of its demands and include crude oil and natural gas under the GST framework at a lower rate of 5%. This would not only improve the ease of doing business but also reduce the tax burden on businesses and consumers.
In conclusion, the oil and gas industry’s demand for lower GST rates is a legitimate one, driven by the need to simplify the tax structure and reduce the compliance burden on businesses. The inclusion of crude oil and natural gas under GST at a lower rate of 5% would have several benefits for the industry and the economy as a whole. As the government prepares to present the Union Budget for 2026-27, it is hoped that it would take a favorable view of the industry’s demands and introduce reforms that would promote the growth and development of the sector.
About the Author
