India’s oil industry seeks lower GST rates in upcoming Budget
As the Indian government prepares to unveil its Budget for the fiscal year 2026-27, the country’s oil and gas industry is pinning its hopes on a crucial 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 insiders, would significantly improve the ease of doing business in the sector, making it more competitive and aligned with global standards.
The oil and gas industry in India has long been seeking the inclusion of petroleum products under the GST framework. Currently, crude oil, natural gas, petrol, diesel, and aviation turbine fuel (ATF) are exempt from GST, and instead, are governed by a complex system of state-level taxes and levies. This has resulted in a lack of uniformity in taxation across different states, creating difficulties for businesses operating in the sector.
“We remain hopeful of the inclusion of petroleum within the GST framework,” said Kapil Garg, Founder of Oilmax Energy, echoing the sentiments of the industry. 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 provide a significant boost to the industry.
The benefits of including crude oil and natural gas under GST are multifaceted. For one, it would help reduce the cascading effect of taxes, where taxes are levied on taxes, resulting in a higher tax burden on businesses. This, in turn, would lead to lower costs for consumers, making petroleum products more affordable. Additionally, a uniform GST rate would facilitate the smooth movement of goods across state borders, reducing logistical challenges and increasing efficiency.
Furthermore, the inclusion of petroleum products under GST would also help increase government revenues. With a unified tax system, the government would be able to track and monitor tax collections more effectively, plugging leakages and reducing tax evasion.
Another key demand of the industry is compensation for under-recoveries made on LPG (Liquefied Petroleum Gas) sales. The government has been providing subsidies on LPG to keep prices affordable for consumers, particularly in the rural and underprivileged segments. However, this has resulted in significant under-recoveries for oil marketing companies (OMCs), which have been incurring losses on the sale of LPG.
According to an ICRA executive, the industry may seek compensation for these under-recoveries, which could be in the form of a direct subsidy or a rebate on GST. This would help OMCs recover their losses and maintain their financial viability.
The oil and gas industry’s demands are not without merit. The sector is a critical component of the Indian economy, contributing significantly to the country’s GDP and providing employment opportunities to millions. A favorable tax regime, coupled with a stable and predictable policy framework, would go a long way in attracting investments and promoting growth in the sector.
As the government prepares to unveil its Budget for 2026-27, the oil and gas industry is watching with bated breath. The inclusion of crude oil and natural gas under GST at a lower rate of 5%, along with compensation for under-recoveries on LPG sales, would be a significant step forward in promoting the ease of doing business in the sector.
The industry’s demands are in line with the government’s broader objective of promoting economic growth and increasing tax compliance. A simplified tax structure, coupled with a stable policy framework, would help attract investments and promote growth in the sector, ultimately benefiting the economy as a whole.
In conclusion, the Indian oil and gas industry’s demands for the inclusion of crude oil and natural gas under GST at a lower rate of 5%, along with compensation for under-recoveries on LPG sales, are reasonable and justified. The government would do well to consider these demands in the upcoming Budget, as it would have a positive impact on the sector and the economy as a whole.
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