Professional, technical, and business services linked to petroleum crude, natural gas, and mining operations may soon face a higher GST levy. Sources told CNBC-TV18 that the Centre has proposed increasing the rate on such services from 12% with input tax credit (ITC) to 18% with ITC.
The proposal is expected to be deliberated in detail by the GST Council in its upcoming meeting on 3–4 September, where rationalisation of rates across multiple sectors is a key agenda.
Why the Proposal?
Currently, services provided in support of oil exploration, natural gas drilling, and mining activities attract a concessional 12% GST. These include seismic surveys, geological and geophysical data analysis, drilling operations, mine planning, and other professional or technical assistance.
The government is considering aligning these with the broader 18% slab, which applies to most consultancy, management, and professional services.
Officials argue that such a move would bring parity, reduce disputes, and ensure higher and more consistent tax revenue. “The idea is to rationalise the tax structure, align all professional services, and prevent arbitrage between industries,” a senior government official explained.
Pros of the Move
- Rate Parity: Oil, gas, and mining services will be aligned with the standard GST slab, avoiding classification issues.
- Revenue Gain: The shift to 18% is expected to strengthen GST collections, particularly from high-value contracts in energy and mining sectors.
- Input Credit Neutrality: As ITC remains available, companies will not face tax cascading, reducing the effective net impact.
- Policy Uniformity: Consistent treatment across professional and technical services will simplify compliance.
Cons and Concerns
- Higher Exploration Costs: Upstream oil, gas, and mining operators will face higher service bills, which could inflate project costs.
- Investment Sentiment: The energy and mining sectors are highly capital-intensive with long gestation periods; higher GST could dampen investor appetite.
- Sector-Specific Challenges: For mining and natural gas projects, where returns are uncertain and exploration is risky, increased service costs may weigh on profitability.
- Cash Flow Burden: Despite ITC availability, companies may struggle with working capital outflows at the higher 18% rate.
Industry View
Tax experts note that while alignment to 18% fits within the Council’s larger rationalisation framework, it could strain industries already grappling with global commodity price volatility. “The uniformity is welcome, but sectors like mining and natural gas face cyclical challenges. The Council may need to balance revenue goals with the long-term growth of these industries,” said an indirect tax advisor.
Energy and mining analysts also caution that increased service costs could reflect in contract pricing, exploration bids, and potentially even downstream pricing of petroleum and natural gas.
What’s Next?
The proposal will be deliberated in detail at the GST Council’s two-day meeting on 3–4 September, where both Centre and states will weigh the revenue benefits against industry concerns.
If cleared, the revised rate would apply to both domestic and multinational service providers engaged in India’s upstream oil, natural gas, and mining ecosystem.
