GST- The GST Council has made a big change in the oil and gas sector. Now the tax rate on exploration, mining and drilling services of petroleum crude oil and natural gas has been increased from 12% to 18%. This new rate will come into effect from September 22. Also, the same rate will be applicable on the allied services of this sector.
Under the new system, companies will get the benefit of input tax credit (ITC). However, crude oil and natural gas are still outside the scope of GST. In such a situation, tax cannot be adjusted at the time of sale, due to which companies may face the problem of stuck tax. According to Prashant Vashisht, Senior Vice President of rating agency ICRA, the increase in production cost will increase the pressure on petroleum companies.
Since the global market is already witnessing a decline in oil and gas prices, the increased GST will prove to be a double challenge for the sector. Dhawal Popat of Choice Institutional Equities believes that this increase in GST rate will increase operating costs and affect the profitability of companies. Exploration and production projects will become less competitive, which may weaken efforts to increase domestic production and reduce import dependence.
According to experts, if the cost of production increases and companies put the burden on consumers, then the prices of petrol and diesel may increase in the future. However, the fall in oil and gas prices in the global market can balance this pressure to some extent at present.