The oil and gas sector will not gain from the goods and service tax (GST) and will lose out due to compliance with dual taxation regimes and non-creditable tax costs, says a report.
The GST law in its present form excludes a major portion of the oil and gas industry products thereby excluding the industry from most of the benefits of the one-tax-one-nation proposal.
Not just that, the new taxation regime will impose an additional burden on the industry due to compliance to a dual tax regime, said a report by the domestic rating agency.
Profitability of the industry could also be modestly hit because of tax-related under recoveries. The new tax law does not seek to include oil and gas products as well as tobacco and liquor under its purview.
"The impact of the GST will be negative on the oil and gas industry due to the compliance with dual taxation regimes and non-creditable tax costs," analysts K Ravichandran, Prashant Vasisht and Anoop Bhatia say in the report.
Parliament has passed the 122nd Constitution Amendment Bill 2014. While the Rajya Sabha and Lok Sabha has also passed the same Bill.
The government hopes to roll out the new tax regime, which will subsume several Central (central excise, service tax, special additional duty of customs etc) and state (octroi, entry tax, value added tax, purchase tax etc) taxes into a single tax, from April 1, 2017. The GST will mitigate cascading taxation and facilitate a common national market.
For the Bill to become a law, it has to be passed by at least 19 state Assemblies besides setting up a GST Council that will make recommendations on taxes to be subsumed, exemptions, rates, date from which GST would be levied on crude, high speed diesel, natural gas, aviation turbine fuel and petrol.
Explaining the rationale for their conclusion, the analysts point out that the present GST law does not include five petroleum items crude oil, natural gas, motor spirit, high speed diesel and aviation turbine fuel at present but would be included at a later date, while LPG, naphtha, kerosene, fuel oil etc are included.
