The Telegraph
Monday , June 5 , 2017

Oil firms fear funds jam

- GST deadline less than a month away, but concerns remain over readiness

New Delhi, June 4: State-owned oil companies have expressed their concern over the government's decision to keep five key fuels out of the ambit of Goods and Services Tax (GST) as it could impact their investment plans worth Rs 88,000 crore.

While products such as kerosene, naphtha, fuel oil and LPG will be under the ambit of GST, five items in the basket - crude oil, natural gas, aviation fuel, diesel and petrol - have been excluded for the initial years.

They have been temporarily excluded from GST as part of an understanding between the Union and state governments to prevent any disruption in states' revenue from the oil sector in the initial years of the tax reform.

However, state-owned oil PSUs said with the implementation of GST from July 1, they would have to comply with both the old and the new tax regimes.

But the tax credit cannot be transferred between the two systems. So, GST paid by an oil company on the procurement of plant, machinery and services cannot be credited against the excise duty and value-added tax paid on outputs such as crude oil, petrol and diesel, which are not covered by GST.

Industry sources said this would have an impact on the investment plans of the oil companies.

For the current fiscal, the oil PSUs have a capital expenditure plan of about Rs 88,000 crore. State-owned explorer ONGC has earmarked nearly Rs 30,000 crore, while refiner IOC has allocated about Rs 20,000 crore. Oil India is planning an investment of around Rs 9,000 crore, refiners HPCL and BPCL, about Rs 7,000 crore each and gas transporter GAIL over Rs 3,000 crore.

While the refiners plan to invest a bulk of the capex to upgrade their refineries to comply with the BS-IV norms from 2020, they also plan to spend a significant amount to augment their marketing and distribution infrastructure, including storage, pipeline and retail outlets.

ONGC and Oil India plan to drill new wells and build processing platforms to raise output, while GAIL intends to spend on some of its pipeline network.

Sources said the PSUs have estimated that they would have to take a Rs 25,000cr hit per year after GST.

Negative impact

Abhishek Jain, tax partner, EY India, said: "The oil & gas industry will be negatively impacted by the introduction of GST. This industry would be pained to comply with both the current tax regime as well as the GST regime.

"Also, it would result in non-creditable tax costs... for example a refinery producing diesel and petrol will pay GST on the procurement of plant, machinery and services; this GST will not be creditable against the excise duty & VAT which would be levied on petrol & diesel. The tax costs will have an inflationary impact on the overall economy," he said.<>The oil companies have drawn up plans for capital expenditure to meet the government's goal to reduce the dependence on oil imports by 10 per cent by 2022.

 More stories in Business

  • Usha Martin charts recovery route
  • Banks not prepared for July 1
  • Sharp TCS cutback in US visa application
  • Textiles in a fix over rates
  • Truck market to see churn
  • Birla Sun Life strategy pays off
  • Warren Tea in a trough