The oil and gas industry is looking forward to announcements for boosting domestic production and changes in the tax structure in the upcoming budget.
Finance minister Nirmala Sitharaman is set to present the Union budget for the financial year 2024-25 in the Parliament on July 23.
The industry expects the government to make some remarks 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,” an industry expert said.
Despite the industry’s demand, petroleum products have not been included under GST, mainly due to opposition from the 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.
He 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.
Boosting India’s energy consumption
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,” another industry expert said.
Additionally, to boost gas consumption in industrial and domestic sectors, the Federation of Indian Chambers of Commerce & Industry (FICCI) suggested that LNG imports should be exempted from payment of customs duty to provide relief to gas-based industries and domestic consumers.
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.
The oil and gas sector expects increased investments in oil exploration amid a decline in domestic production. Another industry expert 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.
