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 country’s oil and gas industry is eagerly awaiting a crucial announcement that could significantly impact its operations. The industry is seeking the inclusion of crude oil and natural gas under the Goods and Services Tax (GST) framework, but with a twist – it wants these essential commodities to be taxed at a lower rate of 5%. This move is expected to improve the ease of doing business for oil and gas companies, making them more competitive in the global market.
According to Kapil Garg, Founder of Oilmax Energy, the industry remains hopeful that the upcoming Budget will include petroleum products within the GST framework. “We remain hopeful of the inclusion of petroleum within the GST framework,” Garg said, highlighting the industry’s optimism about the government’s willingness to listen to their demands. The inclusion of crude oil and natural gas under GST is expected to simplify the tax structure and reduce the compliance burden on oil and gas companies.
The current tax structure for petroleum products is complex, with different taxes levied by the central and state governments. The GST, which was introduced in 2017, subsumed many indirect taxes, but petroleum products were kept out of its purview. As a result, oil and gas companies have to navigate a complex web of taxes, including excise duty, value-added tax (VAT), and central sales tax. The inclusion of crude oil and natural gas under GST at a lower rate of 5% would help reduce the tax burden on these companies and make them more competitive.
Another key demand of the oil and gas industry is compensation for the under-recoveries made on LPG (liquefied petroleum gas) sales. The government had earlier mandated oil marketing companies to sell LPG at subsidized rates to domestic consumers, resulting in significant under-recoveries for these companies. An ICRA executive said that the industry may seek compensation for these under-recoveries in the upcoming Budget. This would help oil marketing companies to recover their losses and maintain their profitability.
The oil and gas industry’s demands are not without merit. The sector is a significant contributor to the Indian economy, accounting for about 15% of the country’s GDP. The industry also provides employment to millions of people, both directly and indirectly. By including crude oil and natural gas under GST at a lower rate and providing compensation for LPG under-recoveries, the government can help the industry to grow and create more jobs.
Moreover, the inclusion of petroleum products under GST would also help to increase tax revenues for the government. The current tax structure for petroleum products is complex and prone to evasion, resulting in significant revenue losses for the government. By bringing these products under GST, the government can increase tax compliance and reduce evasion, leading to higher tax revenues.
The upcoming Budget is also expected to provide clarity on the government’s plans to reduce its stake in public sector oil and gas companies. The government has been planning to divest its stake in these companies to raise funds and promote private sector participation in the industry. The Budget may provide details on the government’s divestment plans, including the timeline and the extent of stake sale.
In conclusion, the Indian oil and gas industry is seeking significant reforms in the upcoming Budget, including the inclusion of crude oil and natural gas under GST at a lower rate of 5% and compensation for LPG under-recoveries. These demands are aimed at improving the ease of doing business for oil and gas companies and making them more competitive in the global market. The government’s response to these demands will be keenly watched by the industry and investors, and will have a significant impact on the sector’s growth and development.
The industry’s demands are not without challenges, and the government will have to balance the needs of the oil and gas industry with its own fiscal priorities. However, by including petroleum products under GST and providing compensation for LPG under-recoveries, the government can help to promote the growth of the industry and increase tax revenues. As the Budget approaches, all eyes are on the government to see how it will respond to the industry’s demands and provide a boost to the oil and gas sector.
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