With the exclusion of Crude oil, Natural gas and major petroleum products from the ambit of GST for the time being, the Petroleum Industry will take a major hit.
This hit will come in the form of stranded taxes as input credit would not be available in the hybrid regime of taxation.
These concerns were expressed at a recent industry discussion, the Finance Directors of the most influential oil companies in India.
Compliance challenge in a dual regime was another issue. A key option deliberated to mitigate the impact was “Zero rating” of the excluded goods. Experts have expressed the need to act quickly before it becomes too late.
The five petroleum products—crude, natural gas, Aviation Turbine Fuel, diesel and petrol—are excluded from the coverage of GST for the initial years while the remaining petroleum products—kerosense, naptha and Liquefied Petroleum Gas—are covered within the coverage of GST. According to Abhishek Jain, tax partner at accounting and consultancy firm E&Y, the new regime would result in non-creditable tax costs which would have an inflationary impact on the overall economy.
For instance, a refinery producing diesel and petrol will pay GST on the procurement of plant, machinery and services. This tax would not be creditable against the excise duty and VAT which would be levied on petrol and diesel.