GST Hike Squeezes India's Oil & Gas Sector
The GST Council has increased the tax on services related to oil and gas exploration and production from 12% to 18%, effective September 22. This rise in tax will elevate production costs, hindering upstream companies due to reduced margins, and potentially impacting domestic output efforts negatively.
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- India
The Goods and Services Tax (GST) Council has announced an increase in tax on services for oil and gas exploration and production from 12% to 18%. Effective September 22, this move is expected to raise the cost of production within the sector.
Significant concerns have been raised by industry experts. Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, Icra Ltd., emphasized that as crude oil and natural gas are not under the GST, this tax hike results in increased production costs without corresponding offsets, leading to stranded taxes.
Dhaval Popat from Choice Institutional Equities pointed out that the increased GST rates would elevate operational expenses and decrease corporate margins. Projects, like coal-bed methane (CBM) initiatives, may face competitive disadvantages, challenging domestic output expansion and efforts to reduce import reliance.
(With inputs from agencies.)
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