The Union government, which is planning a major policy push to raise the share of natural gas in India’s energy mix from the current level of 6.2% to 15% by 2030, is considering a proposal to bring natural gas within the ambit of the Goods and Services Tax (GST) — a move that will make it cheaper for both industrial and domestic use, two officials aware of the matter said.
Levies on natural gas vary from state to state, ranging as high as 24%, a major deterrent to making it a people’s fuel.The ministry of petroleum and natural gas (MoPNG) has proposed to bring natural gas under GST to have a uniform tax rate across the country. The matter is under consideration, the officials said, requesting anonymity.
Petroleum secretary Tarun Kapoor confirmed the development. “There is a demand from the industry [to impose GST on natural gas], which is also supported by the MoPNG. But, then it has to go to the GST Council,” he said, referring to the GST body comprising state and central representatives.
The two officials mentioned above said gas transportation and state-specific value added tax (VAT) on natural gas are two major components that make natural gas costly. Gas, which is bought at the cost of $1-1.5 million metric British thermal unit (mmBtu) and has a landed cost of around $3 per unit, becomes $8 per unit for customers, they said.
Petroleum products such as crude, diesel, petrol, natural gas and aviation turbine fuel (ATF) are awaiting the GST Council’s approval to be included under the GST net. As these products are major revenue earners for some states, they want their individual freedom to levy VAT as per their financial requirements.
DK Srivastava, chief policy adviser at consultancy firm EY India, said all petroleum products should eventually be brought under the GST regime so that input taxation on these products can be neutralised.
“While other products may wait, natural gas can be brought within the GST regime without any significant revenue loss for states and the central government since, currently, it is being taxed at relatively low levels, although rates differ across states and between the Centre and states,” he said. The central excise on natural gas is 14%, while VAT rates vary from 3% to 24% from state to state, the officials mentioned above said.
One of the officials said, “The matter has come up during recent pre-budget discussions and a proposal to have GST on natural gas could be placed before the GST Council after stakeholders’ consultations.”
The council is the apex federal body on GST matters and it is chaired by the Union finance minister. Its members are finance ministers of states and Union territories. The council’s decisions are often unanimous.
Speaking at an industry event on December 17, petroleum minister Dharmendra Pradhan said that India was “ushering a gas-based economy by increasing the share of natural gas” in its primary energy mix in line with Prime Minister Narendra Modi’s vision of “one nation, one gas grid”.
PM Modi on Tuesday will inaugurate the 450-km Kochi-Mangaluru natural gas pipeline that will eventually provide clean gas to industrial and domestic consumers of Kochi, Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur, Kasaragod and Mangaluru districts, the officials said.
“There is immense potential for PNG (piped natural gas) connections as there are 290 million liquefied petroleum gas (LPG) connections as against 7.5 million PNG connections. PNG is cheaper, cleaner and convenient for consumers, hence an element of policy focus that requires a uniform GST rate on natural gas,” the second official said.
Sunil Kumar, chartered accountant at Taxmann — the publisher on taxation matters — said: “Non-inclusion of natural gas under the GST regime is adversely impacting gas producers, suppliers and industrial consumers as they are facing issue of tax cascading or tax on tax and non-availability of credits on procurements.”
Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said taxes on natural gas have a cascading effect and impact both on industrial and domestic consumer rates. “This would discourage usage of gas as an energy source… Extraction of natural gas is highly capital intensive and attracting foreign investments under this sector would be critical. Hence the government should improve ease of operations for this sector to achieve its target of clean energy and development of national gas grid.”