Budget 2021-22 - What the Oil & Gas Sector Expects

If petroleum products are included under the GST regime, it would result in a revival of the industry. For interim relief, the industry hopes that the government would permit the cross-utilisation of input GST against the sales tax or excise duty which would go a long way in reducing the effect of inflation on the industry. The industry also hopes to see a reduction in VAT or excise duty since the cost of crude is on the higher side.

The industry is also hoping that the government will withdraw the GST on import freight which is currently imposed on LNG cargoes. This will help to promote more environmentally-friendly resources.

Another point to be considered is a 5% rate rationalisation or exemption of the goods and services that are bought for constructing the gas and petroleum pipeline across the country. Bringing this under the GST regime would help the industry cut costs as it attracts 28% GST. The operation to lay the pipeline across the country is significantly impacted by the GST rates and not providing input tax credit.

Tax Concessions or Exemptions

To make the oil and gas sector more inviting to investors, both foreign and domestic, the government could also provide direct tax concessions or exemptions. As of now, a concessional direct tax rate is extended to manufacturing companies. Extending this to the city gas distribution companies and oil and gas Exploration and Production (E&P) sector companies would boost investments in these sectors because of the reduction in the base tax rate to at least 15% compared to the 22% that it is at currently.

In order to provide a more attractive tax regime to both foreign and domestic investors in the oil and gas sector, the government could re-start tax holidays or provide weighted deductions for capital expenditure. This will also promote a gas-based economy.

Administrative Reforms

There are also some administrative solutions that the oil and gas sector is hoping the government will provide such as:

1. Removal of GST registration requirement for offshore blocks
2. Fast-tracking the approval process for forest and environmental clearance
3. Removal of the requirement for Essentiality Certificates for the domestic movement of goods
4. Removing restrictions on E & P companies to present contracts before the Houses of Parliament

The oil and gas industry are hoping that the government would introduce a combination of administrative reforms as well as tax reforms to give a much-needed boost to this valuable sector.