With the 45th meeting of the Goods and Services Tax (GST) Council scheduled for Friday, expectations are high about the inclusion of petroleum in the ambit of GST. Mint takes a look at what it means for different sections of industry and consumers.
Explorers like Oil and Natural Gas Corp. Ltd. use various inputs in their business which attract GST. However, since crude oil and natural gas that they produce are not covered under GST, they come under two separate streams of indirect taxation where cross-utilization of tax credits is not possible. Inclusion of crude oil and natural gas in GST could make their business more tax efficient.
Refiners like Indian Oil Corp. and Reliance Industries Ltd. use crude oil, which is outside GST, but various other inputs that go into refining operations would attract GST. Also, while some of their finished products such as petrol, diesel and jet fuel are outside GST and attract central excise duty and state-level value added taxes (VAT), others such as naphtha, light diesel oil, waxes, bitumen and other refinery byproducts come under GST. Inclusion of all petroleum products within GST would simplify their tax structure and possibly make them more tax-efficient.
Removal of tax inefficiencies is likely to benefit consumers and make companies more competitive. Also, sensitive auto fuels like petrol and diesel are heavily taxed by the central and state governments. Bringing them under GST could lead to a reduction in the tax burden but it remains to be seen how much political consensus would be there for such a move given the acute fund requirements of the Central and state governments.
According to Niraj Bagri, partner at Dhruva Advisors LLP, a tax and regulatory services firm, directions by Kerala High Court may have necessitated a discussion on this subject.