• Cut cess on production: Oil firms

    Even as tensions over US-Iran conflict is keeping India’s oil & gas industry on its toes, the stakeholders are looking forward to a spate of measures from the government in the upcoming Budget. Some of the major demands the industry players are looking forward in this year’s Budget includes, rationalisation of cess, natural and gas products to be brought under GST, increase in fuel subsidy among others.

    According to K Ravichandran, senior vice president & group head-corporate ratings, ICRA, at the current elevated crude oil prices, the ad valorem cess of 20% limits the realisations and cash accruals of upstream companies as compared to the earlier fixed cess per MT. “Thus, a downward revision in the cess on crude oil production from the current level of 20% may help upstream companies improve their earnings in a higher crude oil price regime,” said Ravichandran.

    Additionally, one of the prominent demands of the industry has been the exemption from the levy of GST on exploration activity. Also, the sector has been demanding the reduction in Minimum Alternate Tax (MAT) rate for exploration and production operations, which, at about 20% of book profits, is a significant deterrent for investment. Hence, the industry insiders are of the view that it would help in government clarifying the eligibility for a tax holiday under Section 80-IB of the Act and the definition of “mineral oil” which would include natural gas retrospectively, a long-running demand of the industry.

    • Rationalisation of cess, which currently stands at an ad valorem rate of 20%
    • Exemption of exploration activity from the levy of GST
    • Reduction in MAT rate for exploration and production operations
    • Natural gas and other four petroleum products to be brought under GST
    • Reduction in customs duty on LNG import to encourage consumption in various sectors
    • Increase of fuel subsidy for sensitive petroleum products from Rs 336 billion for 2019-20 (BE)
    • Benefit of deduction under Section 35AD to be extended to the city gas distribution entities

    Further, the industry has been demanding that natural gas and other four petroleum products be brought under the GST to enable free flow of credit and avoid stranded taxes. However, the proposal has so far faced severe resistance from States, who are of the view that it will eat away a large part of their revenue. Commenting on the pre-budget expectations, Abhishek Bansal, chairman, ABans Group of Companies, said, “ The government has opted out of keeping petrol and diesel prices under GST ambit in this budget session, but has indicated that it may bring it soon, which has given hope to the industry.” Petroleum products like kerosene, naphtha and LPG are under GST, however crude oil, natural gas, aviation fuel, diesel and petrol have not been kept under this ambit. “If the government brings ATF under GST, then it would help the troubled and loss-making airline industry,” Bansal added.

    Also, the industry stakeholders claim that in order to promote the use of natural gas as fuel, liquified natural gas (LNG) imports should be exempted from the customs duty as crude attracts nil duty in comparison to LNG, which attracts 2.5% duty.

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