32
OIL SECTOR GST Impact Analysis GST Impact Analysis GST Impact Analysis GST Impact Analysis By BHARAT D SARAWGEE & CO

Oil & gas sector gst impact analysis

Embed Size (px)

Citation preview

Page 1: Oil & gas sector  gst impact analysis

OIL SECTOR

GST Impact AnalysisGST Impact AnalysisGST Impact AnalysisGST Impact Analysis

By BHARAT D SARAWGEE & CO

Page 2: Oil & gas sector  gst impact analysis

INDUSTRY OVERVIEW

BHARAT D SARAWGEE & CO

Page 3: Oil & gas sector  gst impact analysis

UPSTREAM

Exploration and production of Crude oil, natural gas

MIDSTREAM

Transportation, storage, wholesale marketing of crude

DOWNSTREAM

Refining and Marketing of petroleum products

ONGC,

OIL India,

Cairn India

Reliance Ind

IOCL

HPCL

BPCL

CPCL

GAIL India

BHARAT D SARAWGEE & CO

Page 4: Oil & gas sector  gst impact analysis

Oil Well

Refinery

Terminals

DepotsIndustrial

ConsumersRetail

Dealers

Consumers

ATF Stations

Consumers

LPG Bottling Plants

Dealers

Consumers

DISTRIBUTION CHAIN

BHARAT D SARAWGEE & CO

Page 5: Oil & gas sector  gst impact analysis

LEGAL

FRAMEWORKBHARAT D SARAWGEE & CO

Page 6: Oil & gas sector  gst impact analysis

Dual Model GST

� CGST for Central Taxes

� SGST for State Taxes

� Cross Credit not allowed

IGST for Interstate and Import

� Can be setoff against CGST and

SGST

� Destination Based Tax

� Consuming state will collect Tax

SGST• VAT

• Entry Tax

• Purchase Tax

• Octroi

• Luxury Tax

CGST

• ED

• Service Tax

IGST

• CVD

• SAD

• CST

BHARAT D SARAWGEE & CO

Page 7: Oil & gas sector  gst impact analysis

Proposed GST Rates by Empowering CommitteeProposed GST Rates by Empowering CommitteeProposed GST Rates by Empowering CommitteeProposed GST Rates by Empowering Committee

Particulars Rates

Exempted Goods and Services Nil

Precious Metal 2%-6%

Merit Goods 12%

General Rate 17%-18%

De Merit Goods 40%

The above rates are total of SGST and CGST

Only One CGST rate, SGST rate may vary within a small band BHARAT D SARAWGEE & CO

Page 8: Oil & gas sector  gst impact analysis

Applicability on Petroleum Products & ServicesApplicability on Petroleum Products & ServicesApplicability on Petroleum Products & ServicesApplicability on Petroleum Products & Services

Crude, Natural Gas, Motor Spirit (MS), High Speed Diesel (HSD), Aviation Turbine Fuel (ATF) out of GST to be included at a later date

WHY???�Contributes to 35% of total tax collection

of the country

�Revenue Loss if brought under GST

�No CENVAT/VAT Credit is available for MS/HSD till date

�MS and HSD still not under VAT Regime

�Specific Excise Duty on MS/HSD

Crude, Natural Gas,

MS, HSD, ATF

LPG, Kerosene, Industrial Oils,

Lubes, Bitumen etc

Transportation, Storage, Safekeeping,

Filling etc

BHARAT D SARAWGEE & CO

Page 9: Oil & gas sector  gst impact analysis

GST IMPACT ANALYSISBHARAT D SARAWGEE & CO

Page 10: Oil & gas sector  gst impact analysis

Multiple TaxesMultiple TaxesMultiple TaxesMultiple Taxes

PRODUCTS AND

SERVICES

OIL

CESS

ED SALES

TAX

VAT ENTRY

TAX/

OCTROI

SERVICE

TAX

GST

CRUDE, Natural Gas,

MS, HSD, ATF ✔ ✔ ✔ ✔ ✔

LPG, Kerosene, Lubes,

Bitumen, Industrial Oil

etc

✔ ✔ ✔ ✔

Services

✔ ✔

BHARAT D SARAWGEE & CO

Page 11: Oil & gas sector  gst impact analysis

CURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIME

Product Current Burden of Indirect taxes GST Regime Taxes

Crude Rs 50/MT plus 5-8% Rs 50/MT plus 5-8%

Natural Gas 0-12.5% 0-12.5%

MS Rs 21500 per MT plus 15-35% Rs 21500 per MT plus 15-35%

HSD Rs 173300 per MT plus 15%-30% Rs 173300 per MT plus 15%-30%

ATF 13% - 38% 13% - 38%

LPG Dom-0-5% ND- 21%-24% 18%*

Kerosene PDS-0-5%, IND- 26%-39% 18%*

Bitumen 19%- 27% 18%

Ind Fuel 27%-36% 18%

Lubes 24%- 35% 18%

Current Burden includes Excise Duty and State taxes like VAT/Sales tax/Entry Tax, range indicating the variation in state taxes

*Domestic LPG and PDS SKO may be classified as Merit Goods in GST with a lower rate of tax BHARAT D SARAWGEE & CO

Page 12: Oil & gas sector  gst impact analysis

CURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIMECURRENT INDIRECT TAXES vs GST REGIME

Services Current Tax GST Regime

Transportation thru pipeline 15% 18%

Storage 15% 18%

Supply of Tangible goods 15% 18%

Renting of Immoveable Property 15% 18%

Safekeeping Charges 15% 18%

LPG Filling 15% 18%

GTA (Reverse mechanism) 3.75% 18%

BHARAT D SARAWGEE & CO

Page 13: Oil & gas sector  gst impact analysis

Local Purchase

Interstate Purchase

Import Purchase

Local Service

Interstate Service

Import Service

ED, VAT

BCD, CVD, SAD

ED, CST

CGST, SGST

IGST

BCD, IGST

ST

ST

ST

CGST, SGST

IGST

IGST

INP

UT

Goods

Refinery

Crude Oil

VAT/CST

VAT/CST

Gas

VAT/CST

VAT/CST

IndustryCurrent Taxes

GST Regime

OU

TP

UT

GST ON UPSTREAM

BHARAT D SARAWGEE & CO

Page 14: Oil & gas sector  gst impact analysis

Local Purchase

Interstate Purchase

Import Purchase

Local Service

Interstate Service

Import Service

ED, VAT

BCD, CVD, SAD

ED, CST

CGST, SGST

IGST

BCD, IGST

ST

ST

ST

CGST, SGST

IGST

IGST

INP

UT

Goods

RefineryService

ST

GST

Service

ST

GST

Industry

Current Taxes

GST Regime

OU

TP

UT

Additional

Credittable in GST

GST ON MIDSTREAM

BHARAT D SARAWGEE & CO

Page 15: Oil & gas sector  gst impact analysis

Local Purchase

Interstate Purchase

Import Purchase

Local Service

Interstate Service

Import Service

ED, VAT

BCD, CVD, SAD

ED, CST

CGST, SGST

IGST

BCD, IGST

ST

ST

ST

CGST, SGST

IGST

IGST

INP

UT

Goods

MS/HSD/ATF

ED, CST, VAT

ED, CST, VAT

LPG/Bitumen/

Kerosene/Lubes

ST

GST

Industry

Current Taxes

GST Regime

OU

TP

UT

Propirtionate

Credittable in GST

GST ON DOWNSTREAM

BHARAT D SARAWGEE & CO

Page 16: Oil & gas sector  gst impact analysis

Stranding of INPUT TAXESStranding of INPUT TAXESStranding of INPUT TAXESStranding of INPUT TAXES

• As per Section 16(6) of the model GST Act, where the goods and / or servicesare used by the registered taxable person partly for effecting taxable suppliesand partly for effecting non-taxable supplies, including exempt supplies, butexcluding `Zero-Rated Supplies, the amount of credit shall be restricted to somuch of the input tax as is attributable to the taxable supplies including zerorated supplies

• MS, HSD and ATF are non taxable supplies, hence proportionate Input Credit tobe availed

• Stranding of Input Taxes to the tune of Rs 20000 Crores for Industry ( Petrofedletter dated 21/07/16) BHARAT D SARAWGEE & CO

Page 17: Oil & gas sector  gst impact analysis

Impact on Other IndustriesImpact on Other IndustriesImpact on Other IndustriesImpact on Other Industries

Non availment of Cenvat Credit/VAT by other sectors using MS/HSD as input

�GST does not exclude MS/ HSD as inputs

�Negative List of various VAT Acts abolished

Denial of VAT Credit on sale of Natural Gas to other Industries

BHARAT D SARAWGEE & CO

Page 18: Oil & gas sector  gst impact analysis

Representation of Industry Representation of Industry Representation of Industry Representation of Industry

�Considering supplies of petroleum products as Zero rated supplies

OR

�Levying Minimum Taxes on exempt petroleum products to cover the Stranded Input Cost

OR

�Petroleum products to be brought under GST for seamless Credit availability and reduction of cascading effect of taxes

BHARAT D SARAWGEE & CO

Page 19: Oil & gas sector  gst impact analysis

OTHER PROVISIONS MAKING IMPACT

BHARAT D SARAWGEE & CO

Page 20: Oil & gas sector  gst impact analysis

Taxability of Off Shore suppliesTaxability of Off Shore suppliesTaxability of Off Shore suppliesTaxability of Off Shore supplies

IMPACT

CS, EEZ not a state

Subject to which GST

Credit available in which state

LAW

IGST to be levied on supplies in the course of interstate trade or commerce

CGST and SGST to be levied on supplies wthin the state

BHARAT D SARAWGEE & CO

Page 21: Oil & gas sector  gst impact analysis

Inter State Stock TransferInter State Stock TransferInter State Stock TransferInter State Stock Transfer

IMPACT

Payment of Tax on Interstate Stock transfers

Increase of Credit Pools

Blockage of fund

Increased Costs of carrying Inventory

LAW

Supply without Consideration –taxable under GST

No Specific Valuation process for Stock Transfers

BHARAT D SARAWGEE & CO

Page 22: Oil & gas sector  gst impact analysis

IMPACT

Taxability in all states of tap off points

Credits in all such states

LAW

Fixed establishments a place characterized by sufficient degree of permanence

Interstate Pipeline TransferInterstate Pipeline TransferInterstate Pipeline TransferInterstate Pipeline Transfer

BHARAT D SARAWGEE & CO

Page 23: Oil & gas sector  gst impact analysis

IMPACT

Self owned pipeline transfers taxable services

Non availment of IGST credit for Transfers of Crude,Natural Gas, MS, HSD, ATF

LAW

Interstate Self Services taxable

Interstate Self owned Pipeline ServicesInterstate Self owned Pipeline ServicesInterstate Self owned Pipeline ServicesInterstate Self owned Pipeline Services

BHARAT D SARAWGEE & CO

Page 24: Oil & gas sector  gst impact analysis

IMPACT

Irrecoverable taxes may reduce

Prices may go down in states where fully recovered

Reduction in Crude Procurement Cost to refineries

LAW

Entry Tax deleted from State List

Deletion of entry tax from state listDeletion of entry tax from state listDeletion of entry tax from state listDeletion of entry tax from state list

BHARAT D SARAWGEE & CO

Page 25: Oil & gas sector  gst impact analysis

IMPACT

Input Tax is not linked with inputs or input services

Input Credits disallowed earlier now allowed

Service tax on Secondary Transportation

Service tax on Rent

Various Marketing Expense

LAW

Input Goods and Service defined as goods or services used in making output supply

Input tax credit defined separately as CGST/SGST/IGST paid on goods or services used for furtherance of business

CenvatCenvatCenvatCenvat Credit Rules ModificationCredit Rules ModificationCredit Rules ModificationCredit Rules Modification

BHARAT D SARAWGEE & CO

Page 26: Oil & gas sector  gst impact analysis

IMPACT

Inclusion will increase the value of Subsidy

Blockage of Working Capital

Subsidy to be included in value even for stock transfers ?

LAW

Transaction value shall include subsidies provided in any form or manner

Value of supply to include subsidyValue of supply to include subsidyValue of supply to include subsidyValue of supply to include subsidy

BHARAT D SARAWGEE & CO

Page 27: Oil & gas sector  gst impact analysis

IMPACT

Whether Storage tank/Pipelines will qualify for plant and machinery ?

Plant and machinery not defined

LAW

Input Tax Credit shall not be available for

Goods or services acquired by principal in connection with execution of works contract resulting in construction of immoveable property except plant and machinery

Eligibility of CreditsEligibility of CreditsEligibility of CreditsEligibility of Credits

BHARAT D SARAWGEE & CO

Page 28: Oil & gas sector  gst impact analysis

IMPACT

Huge increase in transportation cost for MS/HSD/ATF- Denial of Credit

LAW

No Abatement provided for GTA services

GTAGTAGTAGTA---- RCMRCMRCMRCM

BHARAT D SARAWGEE & CO

Page 29: Oil & gas sector  gst impact analysis

IMPACT

Treatment of Manufacturing Losses, Storage Losses, In Transit Losses?

Mechanism of claiming remission?

Statewise different rules may create lot of issues

LAW

The Central or a State Government may provide for remission of tax on such supplies which are found to be deficient in quantity due to any natural causes

Treatment of Natural LossesTreatment of Natural LossesTreatment of Natural LossesTreatment of Natural Losses

BHARAT D SARAWGEE & CO

Page 30: Oil & gas sector  gst impact analysis

Administrative DifficultiesAdministrative DifficultiesAdministrative DifficultiesAdministrative Difficulties

• Current Complexities plus 30 SGST laws plus GST law plus IGST law

• Additional Registrations in each state

• Additional Returns of Inward supplies, Outward Supplies and Annual Return in each state

• Additional Assessments

BHARAT D SARAWGEE & CO

Page 31: Oil & gas sector  gst impact analysis

Complex Credit mechanismComplex Credit mechanismComplex Credit mechanismComplex Credit mechanism

IGST

IGST

CGST

SGST

CGST

CGST

IGST

SGST

SGST

IGST

Three Credit Pool per state

CGST-SGST Set off not allowed

Out Put Tax Liability can

be set off against Input

taxes in given order

BHARAT D SARAWGEE & CO

Page 32: Oil & gas sector  gst impact analysis

THANK YOU

BHARAT D SARAWGEE & CO