NEW DELHI: Import of oil-drilling rigs has been exempted from the goods and services tax (GST) levy to give a boost to domestic exploration and production, the government has said. The GST Council has also cut tax rate on bunker fuel to 5% from 12%.
Nearly all deep sea drilling rigs are imported, and a bulk of the ones used in shallow waters to drill wells to probe and produce oil and gas are also of foreign origin. Petrol, diesel, jet fuel, natural gas and crude oil have been kept out of the GST regime, resulting in continuation of cascading effect of tax-on-tax.
The issue had figured during the meeting Prime Minister Narendra Modi held on Monday with CEOs of top international and Indian energy firms. They demanded the inclusion of fuels, especially natural gas, in the GST regime.
The council has also decided that offshore works contract services with associated services relating to oil and gas exploration and production in the offshore areas beyond 12 nautical miles shall attract GST of 12%, and transportation of natural gas through pipeline will face 5% without input-tax credits (ITC) or 12% with full credit.
Revenue secretary Hasmukh Adhia had briefed the meeting about the decisions the GST Council had taken on October 6 to grant some relief to the sector that has been hit because of GST paid on inputs could not be set off against the taxes paid on the final product.
The Central Board of Excise and Customs in a statement on Wednesday gave details of the decisions taken at the council meeting, which would “incentivise” investments in exploration and production, and downstream.
“Import of rigs and ancillary goods imported under lease will be exempted from Integrated-GST, subject to payment of appropriate IGST on the supply/import of such lease service and fulfilment of other specified conditions,” it said.
Tax experts are of the opinion that petro products should be brought under the GST.
“…Instead of these ad hoc relief measures, it would be great if the Council uses this momentum to include these products into GST which would provide complete relief to this sector,” said Abhishek Jain, tax partner, EY India.
ET View: Boost to Investment
The move to exempt import of oil rigs from goods and services tax (GST) makes sense. Also welcome is the step to reduce the GST rate to 12% for oil exploration and production activity in the deeper offshore. It should shore up investments in the capital-intensive and high-risk exploration and production sector. However, instead of these piecemeal relief measures, the entire oil and gas sector, including the main products such as diesel, petrol and jet fuel, needs to be included in the GST regime.