Singapore — India's bunker fuel industry is expected to face tough head winds as the country gears up to implement a new Goods and Services Tax (GST), which replaces several regional and state taxes, and is scheduled to come into force from July 1.
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India's bunker sales came to about 1.2 million mt in 2016, compared with around 800,000 mt in 2015, according to industry sources.
The majority of the bunker fuel supplied in the country is marine fuel oil. Marine fuel sales jumped last year in part due to better fuel availability as well as new and improved port infrastructure, sources said. But the new tax regime could set volumes back.
Under the old value-added tax regime, bunker sales to foreign-going vessels were treated as a deemed export, sources said.
Even if some states taxed bunker sales to the vessels, the amount was negligible, ranging from 0%-5% but mostly staying within 0%-0.5%, they added.
However, the new 18% GST rate on fuel oil is a significant jump and could make business "unviable" as it will likely add substantial costs, an industry source said.
"If the tax comes into force, we will have no choice but to pass over this extra bunker cost to customers but why would they want to pay this amount?" he added, saying there has already been a drop in recent inquiries.
Coastal bunkering will stand to slightly benefit from the new tax as the rate applied to the sector will end up being lower under the new GST regime, he said.
However, coastal bunkering volumes are only about 10,000 mt/month and not enough to offset the business generated from bunkering foreign-run vessels, the industry source said.
If bunker sales to foreign-going vessels are treated as exports, then GST would likely not be levied and this would be positive for overall business, another source said.
"There is a lot of confusion right now and we're hoping that they extend the same benefit [as under the earlier VAT]," he said.
As a result, some suppliers in the country are refraining from offering bunker fuel for the time being as they are hoping for the fuel oil tax on bunkers to be lowered substantially, he said.
"It is highly unlikely that 18% GST [on fuel oil for bunkering foreign going vessels] will come [as a permanent measure]," a third source said.
"India is upbeat about the development of its ports and I don't think the government would like to discourage bunkering," he said, adding that if the 18% tax is implemented bunker fuel volumes could switch to ports such as Colombo where marine fuel prices will likely become more attractive.
Colombo IFO 380 CST was assessed at $329.50/mt on a delivered basis, by S&P Global Platts Wednesday, against Mumbai IFO 380 CST at $307/mt on a delivered basis.
Officials at the Ministry of Shipping declined to comment on the implications for the new tax arrangements when contacted.
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