Oil firms may take a collective hit of Rs 25,000 crore as a result of GST

NEW DELHI:Oil companies will have to take a collective hit of about Rs 25,000 crore a year after the roll-out of the goods and services tax since most of their output is outside the ambit of the new system, the finance chief of the state-run Oil and Natural Gas Corporation has said.

From July 1, India will roll out GST that includes most goods and services but excludes crude oil, natural gas, petrol, diesel and jet fuel. The exclusion of these goods from GST is part of the trade-off Centre conceded to address states’ fear of losing out on revenue from taxes on oil sales, a key source of their income. Other oil products such as kerosene, liquefied petroleum gas and naphtha are included in the GST.

This means oil companies will have to comply with both the old and the new tax regimes. But the tax credit can’t be transferred between the two systems. So the GST paid by an oil company on the procurement of plant, machinery and services will not be creditable against the excise duty and value added tax on the output such as crude oil, petrol and diesel not covered by GST.

"My input cost is going to go up. ONGC alone will have an impact of Rs 6,000-7,000 crore," AK Srinivasan, director (finance) at ONGC told ET.

All downstream companies such as Indian Oil CorporationBSE 1.56 %, Bharat Petroleum CorporationBSE 1.83 % and Hindustan PetroleumBSE -0.02 % Corporation will together have to bear an impact of about Rs 15,000 crore, he said.

And all upstream and downstream companies together will be forced to absorb a tax of about Rs 25,000 crore due to GST, he said, even as he clarified that it is difficult at this point to derive the likely impact on profit. Analysts said higher tax burden for oil companies will have an inflationary impact on the overall economy.

Under GST, 5 per cent tax rate will apply to subsidised kerosene and LPG used for domestic cooking.

At present, most major states have 5 per cent tax on kerosene. Many states impose no tax on cooking gas while others levy up to 5 per cent."The compliance burden will increase for oil companies as they will have to deal with dual tax regimes," said Priyajit Ghosh, partner-indirect tax at KPMG.

For state oil marketing companies, the products under GST regime comprise about a quarter of the total output in terms of value, according to a state firm executive, who did not wish to be identified. So the input tax credit can be claimed only to that extent.

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