Will fuel prices be included? Don’t expect a miracle so soon


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The 45th GST Council meeting, Friday, September 17, could not have been scheduled at a more opportune time. The first face-to-face meeting of the GST Council since the pandemic struck with its venue in Lucknow, expectations for this meeting are high.

Signifying a slow movement towards the return to normalcy, many actors base their hopes on the outcome of the speech around this meeting.

While recent GST Council meetings have been aimed at mitigating the effects of the pandemic, it is likely that this particular meeting will prove to be much broader in its scope of discussion incorporating both – the tax implications to be addressed from pandemic as well as other areas of consumer lifestyle where taxation plays an important role.

The oil and gas sector is one of those areas that calls for intervention. With the exception of residents of the Andaman and Nicobar Islands, the average Indian spends Rs 100 on just one liter of gasoline. With import dependency hovering at 85%, immediate short-term relief for consumers seems unlikely – unless U.S. shale assets start producing at 2011 levels and push oil prices down.

The government in a difficult situation

With the twin challenges of increasing imports and skyrocketing costs, the government finds itself in a difficult position. Guardians of a welfare economy, our political decision-makers cannot reduce public spending; simultaneously, fuel continues to contribute significantly to the government’s already limited sources of revenue. Yet for a country like India, continuing to import 85% of crude – with pressures on public spending expected and world markets extremely volatile – is doomed to failure.

Today, the only way to reduce dependence on crude imports and relieve the public treasury is to increase domestic production. For the exploration industry, such a process takes time, and this can be seen in India’s decline in domestic production from decade to decade.

Aware of this discrepancy, the government has put in place forward-thinking policies such as HELP and OALP. However, production from new blocks is phased. For immediate relief, production from old and aging blocks, which make up 90 percent of India’s production landscape, needs to be increased. These old blocks also continue to suffer from a bygone tax regime while struggling against the limitations inherent in aging resources. Moreover, in India, national actors bear the triple burden of oil royalty, royalty and profit to the tune of 69% of their income.

Fuel tax restricts business potential

Domestic oil and gas players have long called for tax relief because it restricts business potential. However, the revenues from this sector contribute significantly to the public treasury and no compromise has yet been reached. Yet such a possibility could be imminent now.

The GST system has brought obvious benefits to India’s otherwise unorganized tax system. Most importantly, it built investor confidence – a critical need for the oil and gas industry today. While currently crude oil and natural gas do not fall under the GST system, deliberations to review the status are gradually accelerating.

Several reviews are needed, as the highest GST bracket of 28% is significantly lower than the 69% that oil and gas companies pay today. It is hoped that the terminations would be encompassed and that there would not be a freeze on input credits which would certainly lead to a tax cascade.

Reduce the tax burden, encourage producers

By reducing the tax burden, the objective is to encourage producers to increase technologies and improve extraction from existing fields. To facilitate this, the government can charge an additional tax above the capped rate to make up for lost revenue until a decided timeframe. At the same time, the government can impose mandatory provisions for oil and gas companies to use the income saved through taxes to deploy technology and increase production through predetermined reasonable targets.

This relief and incentive measure can send a positive message across the industry, further improving investor sentiment and confidence.

Although the government will have to forgo some immediate revenue, the incentive to invest in the technology will bring long-term benefits in terms of improving domestic production and lowering the import bill.

Innovation, key to the Indian oil industry

Innovation will drive the future of the Indian oil industry. At the same time, a uniform tax structure with incentives for technological upgrading that can improve productivity will be welcome in all sectors. As the third-largest importer of crude, India is not expected to spend $ 100 billion on crude imports alone. At the same time, as customers are forced to pay Rs 100 per liter for petroleum products, the pressure on the economy is increased. A simplified tax structure like the GST could be a positive boost for this struggling sector that supports our thriving economy.

Simplified tax structure, need of the moment

Ultimately, the adoption of the implications of the GST for the oil and gas sector will be the harbinger of an era without dependence on imports in these areas.

A tax system not only serves as a source of revenue for the government, but also encourages tax policies for the growth of domestic industries. In the end, no one expects the government to make a final decision on the sector at Friday’s council meeting, but industry professionals as well as consumers will be watching with their eyes peeled in anticipation. simplification, consistency and incentives for the oil and gas sector as well. .

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Posted on: Thursday September 16th, 2021 9:52 PM IST

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