The oil and gas industry is expecting policy announcements and investment schemes aimed at increasing domestic production and bringing required changes in the tax structure in the upcoming Union Budget, set to be announced on July 23.
The industry remains hopeful for any comments by the finance minister on the long-standing demand for inclusion of petroleum products under the Goods and Services Tax (GST) regime.
“Addressing the tax structure in this sector is imperative as natural gas, crude oil and other petroleum products remain outside the GST ambit, leading to an increasing demand for their inclusion,” said Pankaj Kalra, CEO of Essar Oil & Gas Exploration & Production Ltd (EOGEPL).
Despite the industry’s demand, petroleum products have not been included under GST, mainly due to opposition from state governments. To be sure, any decision on GST is taken by the GST Council, a joint forum of the Centre and the states. But a recommendation in the Budget by the Finance Minister, who heads the Council, can be a big positive.
“Widening the scope of GST, petroleum products, ATF, natural gas, and electricity should be subsumed under GST for providing a seamless flow of input tax credits,” said the Confederation of Indian Industry (CII) in its Budget memorandum.
Kalra said that as the country plans to raise the share of gas in the energy mix to 15 percent, Essar Oil & Gas expects the upcoming Budget to prioritise policy frameworks and measures for the oil and gas sector.
Among other key announcements, Sitharaman in the previous year’s Budget had allocated Rs 30,000 crore to state-run oil marketing companies (OMCs) for capital investments towards energy transition and net-zero emission objectives. However, the amount was halved later in the year. With OMCs making significant profits currently, an allocation for the oil companies is not expected in the current Budget.
Policy reforms to increase consumption
In addition to including gas under GST, the Federation of Indian Chambers of Commerce & Industry (FICCI) suggested that LNG imports may be exempted from payment of customs duty to provide relief to gas-based industries and domestic consumers, which would also promote usage of the environmentally friendly fuel in industrial and domestic sectors.
“Natural gas is an environment friendly fuel, and it is desirable that import of LNG is exempted from the customs duty to enable cost effective supply of gas to major industries like fertiliser, LPG, CNG, PNG, petrochemical and power,” said FICCI.
Industry players also expect announcements in the Budget for encouraging investment in the petrochemical industry saying the move would enhance the country’s self-sufficiency. “India, being the fastest growing economy in the world, has a high energy demand, and there is a need to encourage investments in expanding refining and petrochemical capacities. Offering tax incentives, supporting faster clearances, facilitating land acquisition, etc, will encourage both domestic and foreign investments,” said Alessandro Des Dorides, CEO of Nayara Energy.
The oil and gas sector expects increased investments in oil exploration amid a decline in domestic production.
Kapil Garg, Chairman & Managing Director of Oilmax Energy said continued capital expenditure is necessary, particularly in energy, logistics, and infrastructure, including gas pipelines and railway corridors.
The industry is also hopeful for a continued focus on ethanol blending in petrol and expects the removal of special additional excise duty (SAED) or windfall tax on petroleum crude.
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