Boost for Indian bunker sellers as GST rate is slashed to 5%

The Goods and Services Tax (GST) on bunker fuel is lowered for both foreign-going and coastal vessels.

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Updated on 12 Oct 2017 09:02 GMT

Bunker sellers in India were given a boost on Wednesday when the Ministry of Finance's Central Board of Excise and Customs (CBEC) confirmed that the Goods and Services Tax (GST) on bunker fuel has been lowered for both foreign-going and coastal vessels.

The new GST rate on bunkers is being slashed to 5 percent from its current rate of 18 percent, which was implemented on July 1.

The recommendation to lower the tax rate for bunker fuel was made during the GST Council's 22nd meeting, which was held on October 6.

Additionally, it was announced that the transportation of natural gas via pipeline will attract a GST of 5 percent without input tax credits (ITC), or 12 percent with full ITC.

Offshore works contract services and associated services relating to oil and gas exploration and production in the offshore areas beyond 12 nautical miles will attract a GST of 12 percent.

In a statement, the CBEC explained that the changes had been made "to reduce the cascading of taxes arising on account of non-inclusion of petrol, diesel, ATF, natural gas and crude oil in GST and to incentivise investments in the E&P (exploration and production) sector and downstream sector."

"Notifications to give effect to the above proposals will be issued shortly," the government department added.

18 percent Goods and Services Tax (GST)

The new Goods and Services Tax (GST) was introduced in India at a rate of 18 percent on July 1, replacing regional and state taxes. Prior to its implementation, the value added tax (VAT) on bonded bunkers sold to vessels engaged in foreign voyages ranged between 0 and 5 percent, but was in many cases below 0.5 percent.

The decision to put in place a GST of 18 percent was met with concern amongst local bunker sellers earlier this year, with many fearing that by passing on this extra cost to customers, it would result in a drop in bunker sales volumes.

In 2016, marine fuel sales in India were estimated at around 1.2 million metric tonnes by Platts - up from 800,000 tonnes the previous year, whilst India's Business Line previously reported that sales between April 2016 and March 2017 were 2 million tonnes.

Last month, the Indian daily also claimed that bunker sales in the country had fallen by as much as 90 percent since the GST was introduced.