The oil and gas industry is wanting on the authorities to present a lot-wanted aid for the sector which is saddled with a excessive tax value and administrative burden.
In the wake of monetary turmoil on account of COVID-19 , the oil and gas industry is taking a look at Budget 2021 with nice expectations to present a fiscal stimulus and take away tax inconsistencies and administrative hurdles.
The oil and gas industry is saddled with an elevated tax value on account of its non-inclusion beneath Goods and Service Tax (GST) regime. While the sector pays taxes on key merchandise beneath legacy tax regime (i.e. excise, worth-added tax, state taxes, and many others.) its enter consists largely of gadgets that are beneath the present GST regime. GST paid on such inputs shouldn’t be out there because the credit score in opposition to output legacy taxes and therefore turns into a price to the industry. It is predicted that the federal government could resolve such anomalies by offering a roadmap of its vision on how it proposes to integrate the sector into the GST regime.
Inclusion of petroleum merchandise beneath the GST regime can be pivotal in reviving the industry sentiments. If this believable and persistent ask shouldn’t be honoured instantly, not less than cross utilisation of enter GST in opposition to excise obligation/ gross sales tax ought to be allowed for interim aid to keep away from inflationary impact on the economic system. The authorities may additionally take into account the discount of excise obligation/VAT contemplating the excessive worth of crude. Further, it can be within the curiosity of the sector if the readability is introduced on numerous GST points within the exploration and manufacturing (E&P) sector.
The 12 months 2020 has additionally highlighted the dire want to take into account the use of local weather-pleasant sources. To promote this modification, GST on import freight for all LNG cargoes ought to be withdrawn. The authorities may additionally take into account exemption or price rationalisation (5 %) of items and companies procured for development of cross-nation petroleum and gas pipeline beneath the GST regime as they entice GST up to 28 %. Absence of availability of enter tax credit score and excessive charges of GST enhance the associated fee of operation considerably.
Apart from giving fillip from the oblique tax entrance, the federal government may additionally take into account giving direct tax exemptions or concessions to make the funding within the sector engaging for home and international buyers. This could possibly be achieved by extending the concessional direct tax price, as relevant to manufacturing firms, to firms within the Exploration and Production (E&P) sector and City Gas Distribution enterprise. This will cut back the bottom tax price of such firms to 15 % as in opposition to present tax regime of 22 %.
As an alternate, the federal government may additionally take into account bringing again tax holidays or weighted deductions for capital expenditure incurred by these firms. This will obtain twin aims of offering higher tax regime to home and international buyers to encourage their participation sooner or later bid rounds and promotion of home manufacturing and encourage gas-based economic system.
It would additionally assist if the federal government offers clarifications on the legacy direct tax controversies on the eligibility of tax holidays, availability of presumptive tax regime and different associated controversies. This will be certain that the tax controversies are put at relaxation and would save useful time and sources of such firms and the federal government.
Apart from aforesaid substantive modifications, the federal government may additionally take into account giving administrative reliefs to the businesses engaged within the sector. For occasion, the quick-monitoring approval course of for environmental and forest clearances, eradicating restrictions on Exploration and Production firms to desk their contracts earlier than each the Houses of Parliament, removing of the requirement for acquiring Essentiality Certificates for home motion of items, removing of GST registration requirement for offshore blocks, and many others.
It has been seen that the businesses incur avoidable extra value and administrative burden, which might be simply saved via administrative motion.
In a nutshell, the oil and gas industry is wanting on the authorities to present a lot-wanted aid for the sector which is saddled with a excessive tax value and administrative burden.
The author is Tax Partner, EY India.
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