GST Council cuts tax rates for oil and gas firms

13 Oct 2017


The government on Wednesday said it will either reduce tax rates or exempt a few services related to exploration and transportation of oil and gas from the goods and services tax (GST), in what would be a partial relief to oil and gas companies.

While the rate on bunker fuel will be reduced to 5 per cent from 18 per cent which will make Indian sellers competitive with other Asia ports, works contracts for offshore areas beyond 12 nautical miles will attract 12 per cent tax instead of 18 per cent now.

GST Council has kept petrol, diesel, ATF, natural gas and crude oil outside its ambit and tax on these products contributes a substantial amount to both states' and centre's revenues.

With the exclusion of petrol, diesel, ATF and crude ol from GST creating pricing complexities, the GST Council decided to relax GST rates on related activities to ease the cascading impact on petroleum products.  

The Centre on Wednesday said that the GST Council had at its meeting on 6 October taken decisions to reduce the cascading effect of excluding petrol, diesel, ATF, natural gas and crude oil from the purview of GST.

The decisions include cutting the rate on ancillary services such as transport of natural gas through a pipeline, and import of rigs.

''To reduce the cascading of taxes arising on account of non-inclusion of petrol, diesel, ATF, natural gas and crude oil in GST and to incentivise investments in the E&P (exploration and production) sector and downstream sector, the GST Council in its 22nd meeting held on October 6, 2017, has made… recommendations for GST rate structure for specified goods and services,'' the finance ministry said in a release.

Offshore work contract services and associated services relating to oil and gas exploration and production in offshore areas beyond 12 nautical miles would be taxed at 12 per cent, according to the release. The transportation of natural gas through pipelines would attract GST of 5 per cent without input tax credits (ITC), or 12 per cent with full ITC.

''Import of rigs and ancillary goods imported under lease will be exempted from IGST, subject to payment of appropriate IGST on the supply/import of such lease service and fulfilment of other specified conditions,'' the release added. GST on bunker fuel has also been reduced to 5 per cent, both for foreign going vessels and coastal vessels.

The government said the steps have been taken to incentivise hydrocarbon exploration in the country.

The issue was also raised by both domestic as well foreign oil companies, including Rosneft, BP, Shell, among others, at a meeting with Prime Minister Narendra Modi on Monday.

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