GST could bring significant value to India's oil & gas sector

25 October 2019 3 min. read
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The steady stream of revenue form the oil & gas sector appears to have discouraged state governments from bringing the sector under the Goods & Services Tax (GST) regime, according to Partner at Deloitte India Debasish Mishra. Speaking to the Economic Times, Mishra stressed that applying GST to the sector is crucial for its long-term welfare. 

Two major issues currently plaguing India’s oil sector, according to Mishra, are sub-par levels of infrastructure and a lack of affordability. Oil and gas production across the globe is undergoing technological advancement, an area where the Indian industry requires considerable investment.

According to Mishra, the government is engaged in solving the infrastructure investment and availability issue. This is exemplified by the $60 billion that is currently earmarked to be invested in the gas segment. A City Gas distribution network currently being developed is set to distribute oil to as much as 70% of the population in India.

On the other hand, Mishra reports that the government is continually ignoring a quick fix when it comes to promoting greater affordability in the sector. The GST, which appears to have done wonders for revenue collection across the country, could help improve matters for the oil sector too.

GST could bring significant value to India's oil & gas sector

Revenue collection from the GST – a streamlined portal that accounts for all indirect taxes being levied – has been exceeding Rs 1 trillion over the last year. Bringing liquefied natural gas under the GST paradigm might boost these revenues tremendously, although such a move has faced considerable opposition from state governments. 

In the context of the City Gas project, Mishra said, “With this infrastructure in place, the government is addressing the infrastructure availability issue but the affordability problem still remains. So, in the GST regime, the complexity of taxation will come down and the affordability will increase which will help increasing consumption of natural gas."

Solving these issues of affordability and infrastructure availability are crucial for India’s oil sector, given that demand for oil in India is set to skyrocket over the next few years. According to Mishra, this makes India an attractive market for investments in the oil and gas space.

“The projections today, whether it is IEA's outlook or British Petroleum’s, show that India’s energy demand will be growing in excess of 4.5% in the next two decades, which is far exceeding the rest of the world. It will probably be on the one of the highest in the world. The world energy demand in the corresponding period, however, will grow flat at 1%, hence there is tremendous interest in midstream and downstream companies in terms of investment opportunities in India,” he said.